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Nexus Financial Management LLC
4600 Touchton Road E.
Building 100, Suite 150
Jacksonville, FL 32246
Saving for Retirement
Figure out how much you'll need to save
Although most of us recognize the impor-
tance of sound retirement planning, few of By the time you retire, you'll need a nest egg that will provide
us embrace the nitty-gritty work you with enough income to fill the gap left by your other in-
involved. With thousands of investment come sources. But exactly how much is enough? The follow-
possibilities, complex rules governing retire- ing questions may help you find the answer:
ment plans, and so on, most people don't
• At what age do you plan to retire? The younger you retire,
even know where to begin. Here are some
the longer your retirement will be, and the more money
suggestions to help you get started.
you'll need to carry you through it.
Determine your retirement income needs
• What kind of lifestyle do you hope to maintain during your
Some experts suggest that you need any- retirement years?
where from 60% to 90% of your current income to enable you
to maintain your current standard of living in retirement. But What is your life expectancy? The longer you live, the
this is only a general guideline. To determine your specific more years of retirement you'll have to fund.
needs, you may want to estimate your annual retirement ex-
• What rate of growth can you expect from your savings
now and during retirement? Be conservative when pro-
Use your current expenses as a starting point, but note that jecting rates of return.
your expenses may change dramatically by the time you retire.
• Do you expect to dip into your principal? If so, you may
If you're nearing retirement, the gap between your current ex-
deplete your savings faster than if you just live off invest-
penses and your retirement expenses may be small. If retire-
ment earnings. Build in a cushion to guard against these
ment is many years away, the gap may be significant, and
projecting your future expenses may be more difficult.
Build your retirement fund: Save, save, save
Remember to take inflation into account. The average annual
rate of inflation over the past 20 years has been approximately When you know roughly how
3%. (Source: Consumer price index (CPI-U) data published by much money you'll need, your next
the U.S. Department of Labor, 2008.) And keep in mind that goal is to save that amount. First,
your annual expenses may fluctuate throughout retirement. you'll have to map out a savings
For instance, if you own a home and are paying a mortgage, plan that works for you. Assume a
your expenses will drop if the mortgage conservative rate of return (e.g., 5
is paid off by the time you retire. Other to 6%), and then determine ap-
expenses, such as health-related ex- proximately how much you'll need
penses, may increase in your later retire- to save every year between now and your retirement to reach
ment years. A realistic estimate of your your goal.
expenses will tell you about how much
The next step is to put your savings plan into action. It's never
annual income you'll need to live com-
too early to get started (ideally, begin saving in your 20s). To
the extent possible, you may want to arrange to have certain
Calculate the gap amounts taken directly from your paycheck and automatically
invested in accounts of your choice (e.g., 401(k) plans, payroll
Once you have estimated your retire-
deduction savings). This arrangement reduces the risk of im-
ment income needs, take stock of your
pulsive or unwise spending that will threaten your savings
estimated future assets and income. These may come from
plan. If possible, save more than you think you'll need to
Social Security, a retirement plan at work, a part-time job, and
provide a cushion.
other sources. If estimates show that your future assets and
income will fall short of what you need, the rest will have to
come from additional personal retirement savings.
See disclaimer on final page February 28, 2009
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Nexus Financial Management LLC
Use the right savings tools You have several options for saving for your retirement.
START How do you know what to do? Here's one common approach:
The following are among the most common re-
tirement savings tools: Contribute money to employer-sponsored plan when employer matches your contribution - get
maximum match possible
Employer-sponsored retirement plans like Employer match is Match grows tax deferred You may forfeit match if you don't
401(k)s and 403(b)s are powerful savings tools. free money until withdrawn work for a given length of time
Your contributions come out of your salary as Remaining money
pretax contributions (reducing your current tax-
able income) and any investment earnings grow Make voluntary contributions to employer-sponsored retirement plans
tax deferred until withdrawn. Some 401(k) and Dollars grow tax deferred Some plans allow pre-tax contributions
until withdrawn* resulting in an immediate savings
403(b) plans also allow employees to make after-
tax quot;Rothquot; contributions. In addition, employer- Systematic payments from your Investment choices might be limited
paycheck - you'll hardly notice
sponsored plans often offer matching contribu-
tions, and may be your best option when it comes Remaining money
to saving for retirement.
Contribute to IRAs
IRAs also feature tax-deferred growth of earn- Dollars grow tax deferred until withdrawal (qualified withdrawals
Many investment options
from Roth IRAs are federal income tax free)
ings. If you are eligible, traditional IRAs may en-
able you to lower your current taxable income May or may not be tax Can contribute up to $5,000 in 2008 and 2009**
through deductible contributions. Withdrawals,
however, are taxable as ordinary income (except Remaining money
to the extent you've made nondeductible
contributions). Other options: Annuities, Stock plans, Life insurance, Other investments (e.g., stock, mutual
funds), Nonqualified deferred compensation, Salary continuation plans
Roth IRAs don't permit tax-deductible contribu- Annuities, life insurance, Lower capital gains tax Some options may be complex,
and other options have rates make some equity and timing of taxable events
tions but allow you to make completely tax-free unique tax advantages investments more may be difficult to control
attractive for retirement
withdrawals under certain conditions. With both planning
types, you can typically choose from a wide
range of investments to fund your IRA. Definite plus Need more info Potential disadvantage
Annuities are generally funded with after-tax dol-
lars, but their earnings grow tax deferred (you pay tax on the
*Employers can allow employees to make after-tax quot;Rothquot; contribu-
portion of distributions that represents earnings). There is also
tions to the employer's 401(k) or 403(b) plan. Qualified distributions
no annual limit on contributions to an annuity.
of these contributions and related earnings are tax free.
Note: Distributions from retirement plans, IRAs, and annuities **Individuals age 50 and over may make additional $1,000 IRA catch-
prior to age 59½ may be subject to a 10% penalty tax unless up contributions.
an exception applies.
Disclosure Information -- Important -- Please Review
Nothing in this document should be construed as specific investment advice. For investment and tax concerns specific to your needs,
please request a personal consultation.
Prepared by Forefield Inc, Copyright 2009
February 28, 2009