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Show V Glowing retirement expectations could become painful 'illusion' without planning By CHARLES D. BAKER Financial Consultant As the new year begins, it's more important than ever to take time to do some serious retirement planning plan-ning no matter what age you are now. If you don't, as.an article in "Business Week" once pointed out, Your "glowing retirement expectations ex-pectations could prove a painful illusion." The reasons are not hard to find: less generous private pension plans or plans that are terminated altogether; the tendency of younger youn-ger employees to job-hop, which leaves them without substantial pension rights; curtailment of the tax deductibility of Individual Retirement Re-tirement Account (IRA) contributions contribu-tions for many people; and recurring recur-ring financial problems in the Social So-cial Security and Medicare systems. sys-tems. These and other factors have put the main responsibility for providing pro-viding a comfortable retirement squarely on your shoulders. There are a number of things you can, and should, begin to do right now. First, make sure your previous pre-vious years' retirement account principal and earnings are working as hard as possible. For most people peo-ple that means a self-directed IRA at a brokerage firm, because it is totally flexible. You may divide the money in your IRA among many investment products insured CDs, stocks, bonds, mutual funds, unit trusts, etc. and change your portfolio mix when and as you wish. Next, stop worrying about the loss of tax deductibility for your future IRA contributions. These contributions will still accumulate earnings on a tax-deferred basis, which has always been the most important feature of IRAs from a retirement planning perspective. Tax-deferred earnings is the cake; deductibility was just the icing. (Married individuals filing jointly joint-ly with less than $50,000 adjusted gross income and individuals filing singly with less than $30;000 ad justed gross income, or those who do not participate in employer pension pen-sion plans, are still able to deduct all or some of their IRA contributions. contribu-tions. Check with your accountant or financial consultant.) Finally, work with your financial consultant to design a supplemental supplemen-tal retirement portfolio because, in all probability, you're going to need it. Most people will need much more money to maintain their current lifestyle in retirement than they can realize from annual IRA contributions of $2,000 a year (or $4,000 a year, in the case of working couples). Your financial consultant can help you determine how much you'll need to live comfortably, com-fortably, and how much capital is required to generate that amount of income. Armed with that information, you can select from a large menu of investment products that offer IRA-like benefits. Indeed, some of these instruments are not simply tax-deferred like an IRA, but are tax-free. The difference, of course, is that you eventually pay taxes on the tax-deferred earnings (when you withdraw the money). But you never pay taxes on tax-free earnings. earn-ings. Tax-exempt municipal bonds are the best known of the tax-free products, but zero-coupon municipal muni-cipal bonds, tax-exempt unit trusts and single-premium life insurance plans also offer this valuable advantage. Once you have begun to invest in these kinds of instruments, the key to success will be to develop the same disciplined, systematic allocation allo-cation of capital to them each year that you already use for your IRA. With an IRA, you are "forced" to be disciplined by the annual contribution contri-bution deadline and by the tax penalty pen-alty you incur if you withdraw your money prematurely. With your "second" retirement account, your discipline must be self-imposed. self-imposed. But the reward of a financially finan-cially secure retirement is well worth the effort. |