Americans today are being forced to review their retirement planning goals with greater scrutiny. No one knows that more than Robert Fishbein, vice president and corporate counsel with Prudential Financial, Inc. He has now offered tips on how to get through this economic turmoil.
He believes that when it comes to retirement planning, we must look beyond the so-called magic dollar figure, which generally means you have no worries. You have the necessary money. However, he argues that there are key issues to consider when trying to accumulate that magic number:
1) What are your needs? He points out that the accumulation of a certain amount must be translated into a yearly or monthly income stream. You need to be able to pay your monthly food, rent, and utility bills, as well as health-care expenses--and have enough left over to live the way you want to live in retirement.
2) The tax lens. He says that you must consider right at the outset the tax liability of your assets. In other words, you should look at retirement assets through what he calls the tax lens so you can see their true economic value. You can't pay your rent or utility bills with before-tax dollars, so it's important to understand what you'll be left with after taxes.
3) Up and downs. Fishbein notes that living expenses will most likely decrease or increase during those retirement years. He calls attention to the barbell approach, whereby spending may be higher both at the beginning of retirement, when the person is more active, and at the end of retirement, when health-care costs increase.
4) Know those health-care costs. These, he says, can be the most difficult retirement expense to estimate. According to the Employee Benefit Research Institute, a 65-year-old couple will need approximately $376,000 to cover medical premiums and out-of-pocket expenses in order to have a 90 percent chance of having enough money to cover health expenses in retirement. This, of course, assumes that the couple has average longevity and that coverage is also available through a former employer, but fully funded by the retiree.
5) Guarantees? Fishbein adds that one needs to determine how much of the retirement income should be guaranteed. In other words, if the plan includes one annual target income amount for basic needs and another, higher target for discretionary needs, then it will be necessary that the basic needs always be met. Naturally, to do that, one has to first determine how much guaranteed lifetime income is expected in retirement. For example, what is the annual payout from Social Security and any traditional pension plan? Does the total cover the basic income need, or is there a gap?
"The bottom line is retirement planning should always consider income needs," Fishbein concludes. "And once those income needs are properly identified, you should look for ways to ensure that your basic retirement needs are covered in a manner that minimizes risk--or maybe even eliminates it altogether."
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