Term Paper: Retirement Planning. Beginning as Early

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[. . .] The other $350 would have gone to the IRS and your state's treasury. Some companies match part of the worker's contributions (Fitzpatrick 2002). Beginning in 2002, there will be a tax credit that will give more incentive to contribute to a 401 (k). This credit is aimed for workers who have the most difficulty in saving for retirement - the low-income worker.

The bear market has inflicted enough pain on retirement savings" (Tergesen 2002). Raises have an affect on retirement funds. If a person does not get his 3% raise, it may not seem like much. However, losing even a small amount of salary can add up to big amounts when it comes to retirement savings. It is important to know whether the impact has an affect on the retirement nest egg (Tergesen 2002). Even little changes can add up over a period of several years, so knowing this can help to add to the retirement plan in other ways.

How Pay Freezes Can Cool Retirement Savings (Tergesen 2002):

Value of 401 (k)

Age Without Freeze With Freeze

Data: Jack VanDerhei, professor at Temple University's Fox School of Business & Management)

Principal Protected Funds:

Who wouldn't like an investment that allows you to participate in a stock market recovery while guaranteeing that you'll get your money back if the market continues to fall? That's exactly what a small but growing number of mutual fund, generally known as principal protected funds, promise if you leave your money with them for a set period, usually 5 to 10 years" (Tergesen 93). It's like letting your money sleep at night and knowing it will be there the next morning. The method is using a combination of stocks and bonds. Investment managers like Scudder or ING are just two firms that offer this service. However, a person can do this by himself. The majority of the money goes into bonds that mature in five years.

Principal Protection

Put about 80% of $100,000 in zero-coupon government bonds that will mature in five years at the value of $100,000. Put $20,000 into stocks. This is how it would look in five years:

Market Return Portfolio Value

80% Bonds/20% Stocks 100% Stocks

The McGraw-Hill Companies, Inc.)

What to Expect to Pay During Retirement

Americans love to spend money and that includes the people who are retired. Most people try to save money for retirement and look forward to the time when they can sit back and relax. However, even those who save for retirement fail to realize how much actual money is needed. "It's essential to get an idea of what you need to be saving today to pay for tomorrow" (Kiplinger 14). Kinlinger's Personal Finance has created a worksheet to help with this purpose or go to www.Kiplinger.com.Here are the steps:

How much income will you need?

How much will social security and a pension pay?

How much do you need?

Protect against inflation.

How much have you already got?

Will your home contribute?

How much more do you need?

Table 1 Money-growth and Inflation Factors









1.16 1.22 1.34 1.47 1.61 1.76

10 1.34 1.48 1.79 2.16 2.59 3.11

15 1.56 1.8-2.4-2.17 4.18 5.47

20 1.81 2.19 3.21 4.66 6.73 9.65

25 2.09 2.67 4.29 6.85-10.83-17.00

Table 2 Nest eggs for $100 a month






25 $130,400 $11,000 $95,000

30 137,200 114,900 98,200

35 141,700 117,300 99,200

40 144,800 118,700 100,100

Table 3 Saving Target Factors







0.0143 0.0136 0.013 0.0123

10 0.0061 0.0055 0.005 0.0045

15 0.0035 0.0029 0.0025 0.0021

20 0.0022 0.0017 0.0013 0.0011

25 0.0015 0.0011 0.0008 0.0006 copyright of Kiplinger's Personal Finance).

Income for Life

Once a person retires, their retirement plan fund must last through the person's lifetime. There are different ways to do this. One way is "Do-it-yourself" withdrawals. This approach can be as simple as withdrawing money when it is needed or wanted (Updegrav 88). Or, withdrawing a certain amount of the retirement fund and adjust it each year for inflation to keep the purchasing power needed. The advantage to this is having the control of the retirement fund. If emergencies arise, money can easily be withdrawn. However, the problem is that the temptation to withdraw all the funds out of the retirement will be tempting at times. "People tend to underestimate their longevity and overestimate the withdrawal rate their portfolio can sustain and that's a dangerous combination" (Undegrav 88). One way to prevent this is to reduce the withdrawal rate.

The Hybrid Solution

Now one way to keep the retirement fund growing is to invest part of the money into stocks or bonds. Using any of the methods will help the retirement fund to last longer. Perhaps seeing a financial advisor for advice might be wise. However, no method is a guaranteed way of keeping the retirement fund long enough without careful budgeting and saving. Investing the assets is the best way of keeping the targeted withdrawals continuing.

Government Offer consideration that can be made is to wait to retire until age 70 and the government offers an incentive for this procrastination. "For each year you delay between age 65 and 70, you get a credit that will increase your payments by 6.5%. Wait until you're 67 to claim benefits, for example, and you'll get a 13% bonus; hold off until you're 70 and five years' worth of credits will boost your checks by 32.5%" Henry 2002). When you consider that a person who might be eligible for $1,660 would wait for five years, their checks would be $2,200. The question might be asked, "Is a bird in the hand worth two in the bush?" It might depend upon health and financial status.

Where to Retire part of retirement is selecting where to retire. Some states give more breaks on taxes than other states. Some things to remember is that there are some activities offered free or at reduced costs to seniors. Check to see if restaurants, entertainment places, spas, or etc. give reduced rates for seniors (Woods 2002). Are there golf course, pools, tennis courts, or other activities in the city where retirement is planned? Here is a list of questions that could be mailed to the Chamber of Commerce in the city that you are considering: (Woods 2002):

Location. Consider whether the property is close to shopping, the post office, libraries, cultural centers, hospitals, churches, and an airport.

Cost of Living. How do the prices compare to the present area? Consider the cost of groceries, auto and homeowners insurance, etc.

Weather/Climate. Will this be a comfortable location year-round?

Taxes. Check out homeowner's taxes, sales tax, auto taxes, etc.

Crime/security/safety. How safe is the area? How much crime and especially crime related to senior citizens.

Health Care. What types of health care are available and the cost? Compare this to what is being paid now.

This list can be added to before sending it. Little things often become the big when it comes to changes. Consider joining the AARP. They have discounts on different items that can save money as a senior citizen (Kasriel 2002). Mary Beth Franklin states that measuring the property-tax burden is important. "For retirees living on a fixed income, taxes can claim an increasing share of the household budget each year, causing some to ponder a move to Florida or Texas, which impose no state income tax" (2002). Definitely different types of taxes is important in considering the best place to live.

Web sites to check before designing the retirement plan:

At Finance-war (www.financeware.com) you can register for a week of free access. They have a "Quizzard" that inputs the target value of your retirement plan and your desired retirement spending level and asset allocation. After all, it is free.

Another free web site is the mPower Personal Advisor retirement planner at www.money.msn.com/retire/planner.asp.Personalized investment advice costs $20 for a year.

If you want to learn more about 401 (k), try the (www.mpowercare.com).It has useful information concerning 401 (k).

Do you want to learn more about bonds? Try www.bonds-online.com.The site covers both corporate and municipal bonds.

Want to know information about Medicare? Try www.medicare.gov.It includes everything about Medicare basics.

Want to know more about retirement living? Check out Kiplinger's Retirement Report online at www.Kiplinger.com/retreport.There'sreport.There'sadvice.

Data Collection Method:

The research can be done by giving both seniors and working employees a copy of Kiplinger's worksheets. This information will determine the difference in how seniors and employees feel about having a retirement plan. A questionnaire can be used to obtain information concerning how employees and seniors feel what they have as their retirement… [END OF PREVIEW]

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