Planning for Retirement

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One of the selling points frequently mentioned for full-time employment with organizations is the retirement plans they offer. However, as powerhouses such General Motors struggle to finance their employees’ pensions and an increasing number of workers find their 401(k) plans tied up in a tangle of conditions and constraints, being your own boss looks more and more desirable. Indeed, contractors, consultants and other independents have much more freedom and control over their retirement cashflow, said Michael Kozak, director of wealth management for Cabot Money Management Inc.

“The days of the pension are gone,” said Kozak, who is an attorney and certified financial planner (CFP). “If you’re a W-2 employee, you’re not getting a pension. You’re getting a 401(k), you’re getting a match, and you’re maxed out at $15,000 or maybe $20,000 if you’re over 55 or whatever the age is. For those who are on their own, there’s just a lot more opportunities to defer taxes, get that into retirement vehicles or just take advantage of other things that they need in retirement. An example would be long-term care insurance. It’s easier for them to have their own business pay for that and get a deduction. These guys have the ultimate flexibility.”

As you independents out there mull over how to protect, preserve and expand your wealth for your retirement years, here are three things to keep in mind:

Assemble the Right Team
The emphasis here should be on the word ‘team.’ Retirement planning is a multi-dimensional process, involving accountants, attorneys, insurance agents, brokers and other skilled professionals. Yet far too often, these guys aren’t working from the same script when it comes to your financial strategy. They’re like different actors sharing a stage while simultaneously reciting scenes from “Hamlet,” “The Importance of Being Earnest” and “Death of a Salesman.”

“Nobody really talks to each other. No one really understands what the other hand is doing,” Kozak explained. “The first thing is getting everybody on the same page. There are certain reasons why that’s important. You want to have your investment person understanding what the taxes are going to be for the year, so they’re making smart selections on the investment side for after-tax performance. There should be an interplay and a dialogue at least four times a year between these individuals.”

Perform Inventories
When you are planning for retirement, you should take stock of your wealth at the present. Be sure to include anything you might have accumulated from full-time professional experiences with past employers, such as 401(k) plans or company stock awards. Also, Kozak suggested evaluating your funds with a laundry list of financial questions. “What do we have for assets? What do we have for documents? Do we have estate-planning documents in place? The best way I’ve described it to clients is that I want to grab you by the ankles, hold you upside-down, shake you and see what comes out of your pockets. Very often, these people haven’t had that experience.”

Also, take an inventory of your own attitude toward your work and plan accordingly. “You have to figure out where you want to be,” he said. “Ask yourself, ‘Where do I want to be? Why am I consulting?’ The individual who’s consulting for fun—and to make a little money on the side—is a lot different from the individual who’s saying, ‘God, if I can just get through this until I’m 65, then I’m out.’ You have to plan for them differently. From one, you can expect some residual consulting income, but for the other, you know they’re done. The allocations may be different.”

Write Your Own Rules
There’s a great body of conventional wisdom out there when it comes to financing your retirement, and much of it is ill-advised. Thus, it can be summarily disregarded, Kozak said. “A big fallacy out there is that (retirees) should expect to spend 80 percent in retirement of what you spent when you were working. That’s absurd. When you’re retired, you now have all this time to go to the mall, go to Starbucks, travel or play golf. You can’t tell me that my expenses are going to be less. They’re usually the same, if not more. Also, as the health care system has deteriorated in terms of what’s getting paid for and what’s not, medical costs have increased for a lot of these people, and they’ve got to plan for that.

“There are no rules of thumb, and there’s no typical person,” he added. “I’ve seen things where people say, ‘Save 10 percent or save 15 percent.’ I guess my response to that is that it depends. If 15 percent is the number that gets you to your goal, then save 15 percent or maybe 20 percent to be safe. I’d rather say, ‘Let’s take a look at what gets you there.’ That’s the number. I think you need to plan a little more aggressively. If you have extra money, great. You can take an extra trip or something. It’s like the commercial where the parents are saving for their daughter’s college and then she gets a scholarship, so the boat they buy has ‘College Fund’ on the back. No one ever regretted having too much money. What they regret is if they didn’t plan for it.”

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