Retirement – Can You … or Can You Not?

Quick—have you thought about what you will do when your nursing career ends? When you retire, how much money will you need . . . a million dollars? More, much more? Or less? How long will it take you to accumulate the funds to seed your future? What do you want to do when you quit your day job? Sit, play or start something new?

In one of those truth is stranger than fiction scenarios, over 25 percent of the American population believe that winning the lottery will fund their retirement! The odds of doing so are so remote, you might wonder how any reasonable person could possibly think that a one-dollar chance would truly bring riches beyond imagination. Yet 75 million Americans do. 

Realistic, and non-complicated planning starts with—

√ Determining what your retirement goals are;
√ Accurately estimating how much you need to save to meet your goals; 
√ Identify what investment and retirement plans are available and best suit your needs; and
  Evaluating if your present savings and investments are sufficient to reach your goals.

Your personal goals will shape just how much you need. Here’s one of the great secrets of the retirement planning process—it’s always under construction. Your goals may change in a few years. The experts always base their projections on assumptions based on past performances. What if those assumptions prove wrong? Flexibility becomes an important factor. Whatever plan you create must have a flexibility factor—one where you can fine-tune and bend to the times. Certainty is rarely a constant.

Let’s start with a series of questions. Each will have an impact on your moneys. Ask, and answer—at retirement . . .

• Where would you like to live when you retire?
• Do you want to live alone?
• Will you live with someone—who?
• If you need physical assistance, how much do you think help will cost?
• At what age would you like to retire?
• What type of lifestyle would you like to live in?
• What expenses do you anticipate?
• If you have a spouse, what are her retirement goals and dreams?
• Are they any large expenditures planned?
• Do you plan to work for pay after you retire from nursing?
• Do you think that inflation will be a factor? If yes, at what growth rate?
• How long do you expect to live?
• Do you have any investments? What is their value?
• What kind of return are you projecting to get on your investments?
• Do you have any retirement accounts? Which ones? What is their present value and what does the plan administrator project your monthly income will be?
• What does Social Security estimate you will get?
• Is there a possibility that you will inherit any assets? Value?
• How much of a money cushion/reserve do you need to be comfortable?
• Will you own a home? Will it be mortgage free?
• Do you want to leave an inheritance after your death?

Living Costs After Retirement
Many planners estimate that you will need anywhere from 70 to 90 percent of your pre-retirement income to meet your needs. You may need far less. It depends on how and what you need for daily living. 

The best you can do is estimate. If you are just a few years from retirement, you have a reasonable guesstimate of present expenses. Ten years from now, your cost of living could change dramatically. If you are more than a decade from retirement, any accuracy is difficult.

Accounts to Tap Into
You’ve got lots of choices for retirement planning. Besides savings and investments that you make with moneys that have already been taxed, you have multiple options with pretax dollars. Consider . . .

Almost everyone can create an IRA—the Traditional IRA (pre-tax dollars that grow tax deferred and are usually tax deductible), Spousal IRA (a non-working spouse can open a retirement account—it’s based on your spouse’s salary and usually tax deductible) or the ROTH IRA (post tax dollars, non-deductible with all earnings tax free). 

Presently, if you meet the guidelines, you can contribute $4,000 to either with a “catch-up” provision of $1,000 if you are over 50. If you are under 50, go with the ROTH.

401(k) and 403(b)
Employee retirement accounts surface in 401(k) and 403(b) opportunities, available to full-time and part-time employees. 

If you work for a corporation (versus a not-for-profit), you may be able to participate in a 401(k). You, as the employee, can put in an amount that allows a maximum limit contribution of $15,000. If you are over 50, you can increase your contribution to it with another $5,000. Your moneys are pre-taxed, will grow tax deferred and will be taxable when you withdraw it.

Invest at least enough in your 401(k) plan to get the percentage the company matches. Many pay 50 cents on the dollar (sometimes the match is in company stock) up to 6% of your salary. If you take a pass and don’t participate, you are giving up free money. 

In 2006, $15,000 was the maximum contribution by the employee with a provision that if you are over 50, an additional $5,000 can be added. An employer can contribute as much as $29,000—the total contributed amount in 2006 is $44,000.

If you are baffled about the choices in your 401(k) plan, find out if your plan offers a “target retirement” fund. These funds invest in a mix of stock, bond and money market funds and automatically adjust your investments based on when you plan to retire.

Roth 401(k) 
New in 2006 is another choice. It looks like the traditional 401(k), but instead of contributions being made with pre-tax dollars, this version is done with post-tax dollars. The difference: The pre-tax version creates all taxable income when you withdraw it. The new version is tax free when withdrawals start. 

A 403(b) account is similar to a 401(k) but offered by a tax-exempt employer—such as a hospital, school or not-for-profit group.
If you are over 50, a “Bonus Catch-up” is created. You can make additional annual “Age 50+ Catch-up” contributions to your 403(b) plan beginning in the year you turn 50. If you’re already contributing the maximum to your 403(b) plan, you may be able to use these pre-tax, catch-up contributions to save even more for retirement. In 2006, it’s $5000.
There’s also a “Lifetime Catch-up.” Available to employees who have completed 15 or more years of service, this provision allows participants to contribute up to $3,000 in 2006 in addition to the regular contribution limit. To qualify, you must be a long-term employee who has contributed on average less than $5,000 a year to your 403(b) plan. The maximum lifetime limit for this catch-up provision is $15,000. Your 403(b) vender/administrator must verify you have not exceeded the contribution limit to qualify.

Other Options
Small businesses and individuals who are self-employed can open a KEOGH, SEP IRA or SIMPLE IRA. Each allows the set up personal pension contributions that are tax-deductible and can’t be withdrawn before retirement age without penalties. What sets this group apart is that a much higher contribution can be made—anywhere from $6,000 to $30,000.

How Much Savings and Investments Are Enough?
One of the biggest obstacles for most people is the belief that anyone who retires must have at least a million dollars stashed away. This is simply not true. Where you live; what moneys you spend on entertainment; what your lifestyle is—do you eat out?; do you throw parties?; do you travel?; do you spend money on expensive clothes?; do you pay rent or a mortgage? etc., are all critical factors in determining what kind of cushion you need. 

That 70 to 90 percent of pre-retirement income that the planners estimate the average person needs could possibly be met by a combination of your Social Security payments, employer benefit plans and other assets that you have accumulated. Too many times, that magical million-dollar pot of gold seems to be totally unattainable for most. The simple truth is that you may not need anywhere near that much.

But, before you think you are home free, do your homework. Determine what the value of your investments and savings you have now, what income will be generated by Social Security and other retirement accounts and what your guesstimated expenses will be. You don’t need a PhD in Economics to determine your needs. What you need is a high level of common sense, the ability to be realistic and a commitment to prioritize. The end result is that you will be able to save and invest the moneys you need to seed and support your retirement years.

Going solo when it comes to rest of your life isn’t money smart. Consult your tax advisor to insure that you are taking full advantage of your tax deductions/deferrals.