Retirement Planning
Achieving life's goals through retirement income planning.
Planning for retirement can quickly appear to an individual or couple as a near impossible and overwhelming task, especially when people seem to be living longer in today's world. Now more than ever, people must be diligently responsible for securing their retirment income. Sage Financial Design, Inc. has dedicated years of service to helping clients understand the many intricate pieces of the retirement planning process and the importance and assurance of maintaining that golden nest egg.
The Sage Periodic Distribution Rate (SAGE PDR)
A calculated percentage for safe, monthly, retirement withdrawal
Sage Financial Design is utilizing a valuable proprietary tool that calculates withdrawal rates from retirement investment assets. After more than eleven years of development, Sage Financial now offers existing and prospective clients three distribution rates, i.e. the current month and two preceeding months.
| Month | Rate |
|---|---|
| May, 2010 | 5.58% |
| April, 2010 | 5.38% |
| March, 2010 | 5.08% |
Ready To Retire?
How much money will be needed to save for retirement, and where will one get it? Unbelievably, many people will need an investment fund of $1 million or more to enjoy the kind of retirement desired - even after taking into account Social Security and any employer pension plan.
Determine Retirement Income Required
First, estimate how much money will be spent annually in retirement. One common way to estimate this is to assume that in retirement a person will spend a percentage of a pre-retirement income.
Since 1988, Aon Consulting and Georgia State University have been compiling data on retirement income needs. The latest iteration of their report is the “Replacement Ratio Study; A Measurement Tool for Retirement Planning.” This report is based on 2004 analysis and builds on previous work. The baseline case results are shown here.
Replacement Ratios |
|||
| Pre-Retirement Income ($000) |
Social Security % |
Private and Employer Sources % |
Total % |
|---|---|---|---|
| $20 | 65 | 24 | 89 |
| 30 | 56 | 28 | 84 |
| 40 | 51 | 29 | 80 |
| 50 | 48 | 29 | 77 |
| 60 | 43 | 32 | 75 |
| 70 | 39 | 37 | 76 |
| 80 | 35 | 42 | 77 |
| 90 | 33 | 45 | 78 |
The baseline case assumes a family situation in which there is one wage earner who retires at age 65 with a spouse age 62. It takes into account age and work related expenditure changes after retirement as well as pre-retirement savings patterns and changes in taxes at retirement.
Further study by Aon consulting of pre-retirement income levels of more than $100,000 indicate that the replacement ratio continues to grow to well over 85%. Higher post retirement taxes have a powerful effect and drive the ratios higher.
The study does point out that even though the replacement ratios are precise percentages of pay, they are determined by “average” employees. Individual circumstances will vary widely.
Adjusting For Inflation
Suppose an income is $50,000 today and a worker plans to retire in 10 years. At an inflation rate of 3%, his/her $50,000 today would be over $67,000 in 10 years. That means the spending needs in the first year of retirement will be about $51,590 (77% of $67,000). On average, about 48% of this will come from Social Security. The balance must come from savings and investments.
Determining Capital Required
If the savings earn a conservative 5%, a fund of more than $600,000 will be needed to meet needs without dipping into principal. However, there is more. Inflation will not necessarily stop when retirement age arrives so more funds will be required to offset the continual impact. More risk may need to be taken to increase the return above 5% so that there will be an excess to invest.
A company-defined benefit pension might provide some retirement income. However, this is getting rarer every day. Most pension plans today are 401(k) plans - essentially this should be only part of your investment portfolio. Even with a pension annuity, it is unlikely to be indexed for inflation, so its purchasing value will diminish each year. After figuring the annual retirement spending and estimating the total retirement fund needed, you will have a feel for how much is needed to save from now until retirement. Many people look at the numbers and decide that reaching their retirement goals is impossible!
However, that is not necessarily the case. Reduce current expenses and save more money. Use the tax code to help save and accumulate that wealth faster. Here are the key ways to use the tax code to increase a retirement fund.
Save Pre-Tax Dollars
A retirement fund grows faster if a whole dollar is saved and invested instead of the sixty cents or less kept after payroll and income taxes. In addition, earnings on pre-tax investment dollars usually compound tax-deferred - helping the fund grow faster. The first step, of course, is to maximize contributions to any 401(k) plans. Encourage your employer to help by matching 401(k) contributions instead of giving pay raises or bonuses. For example, instead of giving a $1,000 raise, the employer could contribute a dollar to the 401(k) account for each dollar contributed, until the employer has contributed $1,000. This avoids income taxes, and the employer avoids payroll taxes. In addition, this action has doubled the pre-tax dollars in a retirement fund.
Use Pension Plan Alternatives
There are fewer pension plans today because of the limits Congress placed on them. However, there are alternatives that give many of the old pension plan tax benefits.
Non-qualified deferred compensation plan
This avoids all the pension plan restrictions. It is a private contract between the employee and the employer. Employees agree to work today in return for payment in the future. When the contract is structured properly, no taxes are owed until the money is paid. The future payment is what the worker would have been paid today plus interest. The catch is that people must take the risk of losing the money if the employer goes bankrupt and is liquidated.
Charitable remainder trust
Set up and contribute to a trust of which you can be the trustee. The contributions are partially deductible as charitable contributions, and the amount of the deduction depends on age. The trust can invest the contributions tax-free, so the principal grows faster. At retirement, the trust begins paying the retiree (or retiree and spouse) an annuity for life. After death, the money remaining in the trust goes to a charity designated. The only limit on your annual contributions is that the charitable deduction cannot exceed 50% of adjusted gross income each year.
Invest tax-deferred
If someone must invest after-tax dollars, invest them so that income and gains compound tax-deferred. There are many ways to do this:
Fully fund your IRA plan opportunities
Make the maximum $4,000 annual contribution even if it is not deductible. The compounding of gains within the IRA makes this worthwhile if the person will not withdraw the money for about seven years. If eligible, consider a Roth IRA instead.
Invest in annuities
If the person is earning interest on bonds, money market funds, or CDs and does not need the income for current spending, consider shifting that money to a fixed annuity. He or she will get a yield similar to that of an intermediate or long term bond. The principal will not fluctuate with interest rates, and the interest will compound tax-deferred each year. The result is more money at retirement. Distributions from a variable annuity are taxed as ordinary income instead of capital gains. If capital gains taxes are cut, the value of variable annuities is slightly reduced.
Invest For Growth
Tax-deferred compounding is supercharged if an IRA account is invested in small company stocks - those that historically have the highest long term returns. This strategy should apply to all tax-deferred accounts.
When an employee has had a tax-deferred account and can choose how it is invested, go for growth. This magnifies the benefits of tax-deferral and increases the retirement fund far more rapidly. The “safe” investments of guaranteed investment contracts and other fixed rate investments are very risky when compared to the wealth one could accumulate over time from small company stocks.
Small company stocks may fluctuate in the short term. That may not matter if the participant is a long term investor accumulating for retirement. However, if it is bothersome, consider shifting the account among different investments periodically. Instead of sitting in a guaranteed return account, shift into the stock fund that seems undervalued and due for a recovery. That may produce high, safe returns over time.
Summary
If participants save a little money each month and stick it in a money market fund, they may not experience enough growth to meet their retirement goals. However, if they use the tax code to save more money and invest that money in tax-advantaged ways, their retirement is more likely to be what they have always wanted it to be.
Sources: Financial Planning Consultants, Inc.
www.Aon.com, 2004 Replacement Ratio Study
Estate Planning
Thoughtful and detailed estate planning services
Important issues and aspects of estate planning such as, protecting your assets, determining your health care directives, and properly distributing your wealth upon death, are crucial components of a successful future now and beyond your years. We listen carefully to your thoughts and ideas about inheritances and heirlooms, transferring money values to your children and grandchildren, plans for a family business, wishes for charitable giving, or simply avoiding estate taxes. Sage Financial works closely with you to understand your wishes now and forever to assure a secure present and future.
Working closely with your attorney, or one that we recommend, we develop the architecture of your estate plan and along side you walk through the planning process. With extensive experience in creating estate plans, Sage offers offers you understanding of the legal language and makes sure your plan accurately coincides with your wishes.
With an established estate plan, we will assist you in accomplishing each detail and will diligently review the plan's effectiveness and make changes according to your wishes.
Key components for successful estate planning
Effective estate planning includes creating and reviewing the following key documents to ensure your wishes are met:
- Revocable trust or irrevocable trust
- Will
- Durable power of attorney for financial matters
- Durable power of attorney for health care
- Living will
During the development and implementation of these documents, we will assist you in determining the appropriate provisions, trustees, guardians, executor or executrix, agent for health care, and offer directive paths required for each.
Uniquely trusted of life's valued things
Working so closely with our clients over the years, we have come to know them well and have gained the insight on what they truly value. We have earned and gained the trust of our clients' family private matters, personal effects and hopes for the future. The dynamics are never easy. Needless to say, we at Sage feel a deep responsiblility for ensuring that wishes are met.
During the estate planning process, we serve as an objective and caring fiduciary for you and your family. We provide these services with no additional fee.
Trust Services
National Advisors Trust Company
Independent Trust Administration
Sage Financial Design, Inc. works with our private trust company, National Advisors Trust, to provide comprehensive fiduciary services to current and future generations of our clients.
National Advisors Trust Company, a federally chartered trust company, was created in 2001 by more than 120 independent, nationally recognized financial advisors, to better integrate their distinctive understanding of their clients' personal and financial circumstances with the fiduciary responsibilities of a corporate trustee.
Although National Advisors Trust acts as trustee, Sage Financial Design will serve as your primary advisor. This ensures that fiduciary matters are conducted in a manner consistent with your long-term goals and objectives while maintaining sensitivity to your unique family needs. If you have an existing trust relationship, Sage Financial Design and National Advisors Trust can coordinate the transfer of the fiduciary responsibilities and management of the trust assets.
Tax Planning
Comprehensive tax planning is indeed necessary to support your financial goals
Effective tax planning is an ongoing process that considers your entire financial picture and how to best take advantage of changing tax laws to improve your financial situation. At Sage Financial, we are knowledgeable about the latest tax laws, which is necessary to help you avoid costly tax mistakes and help you benefit from available tax breaks.
Working closely with you, we make complex tax regulations and their ramifications to your individual circumstances - both understandable and useful. We also consider how life changes such as marriage, the birth of a new child, a new business, divorce or death can affect your tax liability as tax laws continually change.
Strategizing to decrease tax consequences
We offer our clients a comprehensive evaluation of your financial situation and create a tax planning strategy aimed at reducing your tax liability. In fact, our in-house certified public accountant will prepare your taxes for you. Because we are in-tune with your overall financial picture, we have an eye on the tax consequences of each recommendation that is made and believe this to be a unique and tremendous benefit to our client base. Afterall, every dollar that is saved ultimately frees up funds to support your overall financial goals. Whether it be sending a child to college, funding your personal retirement, building a business, or providing for your children and grandchildren in the future, Sage Financial focuses on whatever pieces of the puzzle fit in order to realize your overall goals and dreams.
Using a fiduciary, fee-only advisory firm such as Sage Financial provides you with objective tax planning strategies necessary to realize and support your financial goals.
College Funding
Education is one of the best investments you can make in your child's future. However, the rising cost of attending college makes it crucial to plan ahead for your child's higher education. Sage Financial Design, Inc. can help you create a plan to meet your family's needs.
Annual Survey of College Costs
By College Funding Strategies, Inc
Startling facts about rising college costs:
-
The 2009-2010 ten highest priced colleges over $50,000:
Sarah Lawrence College $55,788 New York University $52,400 George Washington University $51,775 Georgetown University $51,742 Johns Hopkins University $51,690 Wesleyan $51,432 Trinity $51,40 Bates College $51,300 Harvey Mudd College $51,137 Connecticut College $51,115 - 56 of the highest priced Colleges in 2009-2010 come with costs over $50,000 per year.
- 227 of the highest priced Colleges in 2009-2010 come with costs over $40,000 per year.
- There are 1,016 Colleges in 2009-2010 with prices between $20,000 and $40,000 per year.
- A child born in 2009 may face a four year undergraduate college cost over $500,000 dollars if attending a college currently priced over $40,000.
- College costs are rising at an average of 6%; but with proper planning, no price is out of reach.
- Approximately 15 million undergraduate students enrolled for the 2009/2010 school year.
Projected cost of a four-year college education |
||||||
| LOW COST Below $20,000 |
MIDDLE RANGE Between $20-40,000 |
Most Expensive Over $40,000 |
||||
|---|---|---|---|---|---|---|
| Current Age |
Yearly Cost |
4 Years Total Cost |
Yearly Cost |
4 Years Total Cost |
Yearly Cost |
4 Years Total Cost |
| 1 | $36,414 | $145,657 | $86,753 | $347,012 | $125,160 | $500,640 |
| 2 | $34,353 | $137,413 | $81,843 | $327,370 | $118,076 | $472,302 |
| 3 | $32,409 | $129,635 | $77,210 | $308,840 | $111,392 | $445,568 |
| 4 | $30,574 | $122,297 | $72,840 | $291,358 | $105,087 | $420,347 |
| 5 | $28,844 | $115,374 | $68,717 | $274,866 | $99,139 | $396,554 |
| 6 | $27,211 | $108,844 | $64,827 | $259,308 | $93,527 | $374,108 |
| 7 | $25,671 | $102,683 | $61,157 | $244,630 | $88,233 | $352,932 |
| 8 | $24,218 | $96,871 | $57,696 | $230,783 | $83,239 | $332,954 |
| 9 | $22,847 | $91,387 | $54,430 | $217,720 | $78,527 | $314,108 |
| 10 | $21,554 | $86,214 | $51,349 | $205,396 | $74,082 | $296,328 |
| 11 | $20,334 | $81,334 | $48,442 | $193,770 | $69,889 | $279,555 |
| 12 | $19,183 | $76,731 | $45,700 | $182,802 | $65,933 | $263,731 |
| 13 | $18,097 | $72,387 | $43,114 | $172,454 | $62,201 | $248,803 |
| 14 | $17,072 | $68,290 | $40,673 | $162,693 | $58,680 | $234,720 |
| 15 | $16,106 | $64,424 | $38,371 | $153,484 | $55,358 | $221,434 |
| 16 | $15,194 | $60,778 | $36,199 | $144,796 | $52,225 | $208,900 |
| 17 | $14,334 | $57,338 | $34,150 | $136,600 | $49,269 | $197,075 |
| 18 | $13,523 | $54,092 | $32,217 | $128,868 | $46,480 | $185,920 |
Source: The 26th Annual Fifty State Survey of Colleges by Tuition & FeesEnterprises, a division of College Funding Strategies, Inc. projecting the average annual cost of a four-year college for 2009/2010.These figures include only the Cost of Tuition, Fees, and Room and Board. Books, supplies, personal expenses or transportation are not taken into account.
Projections for individual colleges and universities are available upon request.
Tuition & Fees Enterprises,
College Funding Strategies, Inc.
548 Hopmeadow Street
Simsbury, CT 06070
(800) 537-7477 or (860) 658-0444
(A Member of The SAGE GROUP OF COMPANIES)
Contact us for more information on effective college funding strategies.
Philanthropy
Philanthropic Planning
Say thank you by giving back!
Gratitude unlocks the fullness of life.
It turns what we have into enough, and more.
It turns denial into acceptance, chaos to order, confusion to clarity.
It can turn a meal into a feast, a house into a home, a stranger into a friend.
Gratitudemakes sense of our past, brings peace for today, and creates a vision for tomorrow.
We here, at Sage Financial Design, Inc., believe in mentioning and encouraging the notion of charitable giving to be considered as a part of everyone's financial plan.
Sage Financial Design, Inc. is a particpant in Leave a Legacy Connecticut, a statewide public awareness effort to promote charitable giving through wills and estates.
Simsbury Community Television, Inc. presents: Bob Thompson, The Philanthropic Planner
Personal Finance
Personal Financial Security Needs
What Are the Personal Financial Security Needs?
In order to provide for themselves and their families, as well as protect the way they live, most people want to provide for one or more of these personal financial security needs:
Protecting Your Family's Future
How will your family replace your earning power in the event you die prematurely?
Providing for Your Child's Education
How much of your earning power will be available to help pay for your child's education?
Preparing for Disability
If you are sick or hurt and unable to work, how will you replace your earning power?
Preparing for Your Retirement
What will happen to your standard of living when your earning power ceases at retirement?
Making Your Home Debt-Free
How much of your earning power will be spent on unnecessary mortgage interest?
Planning Your Estate Have you made plans to have funds available to pay estate settlement costs at your death?Second Opinion
Hourly As-Needed Financial Planning Advice
Join us for a cup of coffee and a second opinion.
Consider your present financial situation.
Is there uncertainty surrounding your financial stability? Do you have questions involving your savings, investments, retirement plans, insurance, taxes, etc.? How about your wish list and dreams?
We want to know what keeps you awake at night. Take that important step forward and contact us.
We invite you to come in and visit with us.
Sage Financial Design, Inc. offers you objective financial advice...by the hour...as you need it. We work with individuals and families to help them define their financial goals and develop strategies for reaching those goals.
Whether you are newlyweds ready to start your first account, or an experienced investor needing a second opinion on an existing portfolio, Sage Financial offers value-based financial planning to anyone seeking it on an hourly, fee-only, as-needed basis. With no income and net worth minimums, and no assets under management requirements, our approach makes the financial planning process available to everyone. The hourly fee service gives you the flexibility to schedule just a financial check-up and/or get a second opinion, if that is all you need. The hourly rate is designed to help you determine the amount of services needed based on your own budget. We sell no products and collect no commissions or hidden fees. It is our belief and goal to make the financial planning process and needed professional advice available to everyone!
Do you have questions concerning any of the following and desire a second opinion to help make a confident and educated decision?
- Credit or Money Management
- Achieving Financial Goals
- Budgeting
- Investing
- Review of Existing Investment Portfolio
- Credit Card Debt
- Scams / Identity Theft
- Buying and Selling a Home
- Buying or Leasing a Car
- Taxes
- Insurance
- Paying for College
- Refinancing a Home
- Retirement
- Health Care
- Long Term Care
- Estate Planning
- Wills and Trusts
- Philanthropic Planning
- Small Business Succession
- Life Crises
- Raising "Money Smart" Children
If you don’t know where you’re going, you might wind up someplace else.”