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Jim Lentini: You and your retirement strategy

Business Commentary

Posted: July 20, 2010 4:55 a.m.
Updated: July 20, 2010 4:55 a.m.

Few Americans know how much they need to save for retirement. Less than half of current workers have even attempted to calculate how much money they will need, according to a recent Employee Benefit Research Institute survey.

Among those who have a retirement savings goal, 41 percent think they need to accumulate at least $500,000 in order to retire comfortably.

Following is how to tell if you are saving enough:

Monitor current expenses
Unless you plan on spending less money than while you were working, it is said you need at least 80 percent of earnings before retirement to assure a comfortable retirement, and that includes being mortgage-free by the time of your retirement.

Due to our longer life expectancy and active lifestyles, some say it's best to have 100 percent of earnings for retirement years. Also, you have to allow for cost-of-living increases.

Factor Social Security benefits
Retired workers received Social Security checks worth an average of $1,167 last February. This will give most Americans a base to build a retirement income. The rest will be up to you and the plans you initiate to build systematically toward your goals.

Adjust for inflation
Inflation erodes the value of your savings and reduces your purchasing power in retirement. Social Security, and some traditional pension plans are adjusted for inflation each year. You can choose investments that generally grow faster than the overall rise in costs.

Budget for taxes
The balance of your pension, 401(k) and IRAs isn't all available for spending. Regular income tax is levied on withdrawals.

No income tax is generally due on Roth 401(k) and Roth IRA distributions in retirement, as you paid taxes on that money before it was deposited. Be sure to allow for taxes on your regular pension plans.

Health expenses
Health care costs can make a huge dent in your retirement savings. Even after retirees qualify for Medicare coverage at age 65, the cost for Medicare continues to increase, benefits decrease and current health care legislation passed this year will take away benefits. If you have supplemental coverage to offset the costs not covered by Medicare, this cost is increasing, as Medicare continues to increase costs and reduce benefits.

Automatic savings planning
Putting money away systematically is the best way to "dollar cost average" and save for retirement. Most financial advisors say you should be putting away at least 1 percent of your gross income in pension, 401(k) and/or taxable and tax-deferred accounts.

Also, as recommended many times, you should have some portion of retirement assets in variable annuities that have the guaranteed withdrawal benefit rider. Remember, "Pay yourself first, before you pay everyone else."

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments Inc. His column reflects his own views and not necessarily those of The Signal.



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