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How to Retire in Style

Whether retirement is a long way off or right around the corner, it’s important to have a plan so you can enjoy the retirement of your dreams. But where to start? With so many options, it’s easy to get overwhelmed. We’ve demystified the process and broken it down so that you can feel prepared for today, tomorrow and decades down the road.

Start Planning Today

“Those who fail to plan, plan to fail,” the saying goes. Individuals run the risk of unpleasant surprises by not giving the post-workforce years proper consideration. Fortunately, there are steps that can be taken to ensure financial sustainability even after the last official paycheck has been deposited.

Bob Burns, financial adviser and senior vice president of Merrill Lynch in Palm Beach Gardens, walks people through these steps every day.

First, truly consider what an ideal retirement means for your individual situation. “Determine what a fulfilled life would look like,” he urges. Pinpoint priorities and identify which elements may lose importance later in life. Visiting family members may take precedence over buying a flashy new car. The picture will be different for each individual.

Second, assess your situation. Keep track of what your current lifestyle costs. Take notice of trends, such as whether your account balance is rising or falling. Examine how your finances are performing now to predict how they will perform in the future.

Lastly, compare the picture in your head to that on paper. Even if they match, and especially if they don’t, it’s time to act. A team of advisers can help translate an ideal retirement into reality. “An adviser is your bridge to understanding,” Burns explains. A successful retirement plan requires a strategy. It also calls for an objective perspective, which an industry professional can provide.

Your Panel of Professionals

How to assemble a “dream team” of retirement planning

Financial planner: Analyzes clients’ individual financial situations to determine risk, reward and opportunity. They can then make recommendations for investment and management strategies based on a client’s individual circumstances. Also referred to as a wealth adviser.

Certified public accountant (CPA): Specializes in tax-related needs. These advisers can help you navigate through your finances as your income sources become more sophisticated. They can also help you maximize your tax returns and minimize your tax liability.

Estate planning attorney: Aids clients in the drafting and implementation of legal documents, such as wills and trusts. They are also trained to handle retirement plans, life insurance policies and charitable contributions.

Insurance professional: Analyzes the financial risk factors of clients and recommends insurance policies based on individual situations. They can specialize in various types of policies, such as life or property, in order to best serve their clients’ specific needs.

If you don’t have a team of finance professionals at your disposal, don’t despair. Many financial institutions have online resources and representatives available to help get you started.

Living the High Life

A comfortable retirement is based on one simple principle: Spend less, save more. Practicing responsible finances early on allows maximum time for wealth accumulation – the most important contributing factor. The more wealth accumulated during a career, the more resources are available once that steady income disappears.

“The steps individuals should take in early adulthood are clear,” says Kurt Sylvia, UBS managing director of wealth management in Palm Beach. “Save as much as possible, and invest for the long term.” The initial setup should include taking advantage of company-sponsored plans, such as a 401(k). Every plan has different rules, but in general contribute the maximum possible amount. Over time, this investment can grow into a healthy nest egg for later years. “Wealth accumulation is a long-term process, for many successfully achieved through a combination of earning power, saving discipline and long-term investment management,” he adds.

Earning power is a key element. A higher income allows for more substantial saving, and more lucrative investments. This is where risk becomes a factor. “The younger you are, the more risk you can take,” Sylvia explains. “It’s money you won’t need until your 60s.” Before implementing any investment strategy, communicate with your advisers. Clearly express your goals, expectations and risk tolerance in a written document that can act as guidelines for those working on your behalf.

Cheat Sheet: Talking Finances

The first meeting with a financial adviser can be intimidating. Make sure you’re prepared by knowing these key terms.

Asset: Any property owned by an individual or company that has monetary value. Divided into the four main classes: stocks, bonds, cash and real assets.

Asset allocation: An investment strategy that takes into account the investor’s individual goals, risk tolerance and investment time frame in order to strike an optimum balance between risk and reward by adjusting the percentage of each asset.

Investment policy: A defined document containing the specific goals and objectives as laid out by an investor that acts as guidelines for the portfolio manager.

Withdrawal rates: A calculation that determines the percentage an investor is spending from the asset portfolio each year. A recommended “safe” rate is 4 percent.

Risk mandates: An expressed amount of risk an investor is willing to take in order to reach the investment portfolio objectives.

Tax shelter: A legal method of minimizing or decreasing an investor’s tax liability through strategy, investment or tax code provision.

The Risk Factor

Risk can be a frightening concept. How much is enough? How much is too much? Each investor has an individual comfort level based on individual objectives. A mandate, or financial plan, can help you meet those goals.

Lower risk investment strategy: To earn most of your returns from income while minimizing the possibility for devaluation of your portfolio, you’d require a cautious mandate.

Below medium risk: To earn most of your returns from income while increasing the chance for capital growth through a more diversified portfolio, you’d require an income mandate.

Medium risk: To earn returns through a combination of income and capital appreciation, such as equities, you’d require a balanced mandate.

Above medium risk: To earn returns primarily through capital appreciation with a greater potential for capital growth, you’d require a growth mandate.

Higher risk investment strategy: To earn high rates of return from capital appreciation with the highest potential for capital growth, you’d require a dynamic mandate.

What Self-Employed Entrepreneurs Should Know About Retirement

It’s the American dream: Start a business and reap the rewards of self-employment. Success stories encourage many to throw off the chains of the corporate world and strike out alone. It’s tempting, yet not without its own perils.

More often than not, entrepreneurs invest all resources in the company to promote success. This scenario leaves precious little left over to save. Next year might be a big question mark, never mind retirement. But to leave off retirement planning until later would be an oversight with no small consequences.

“Retirement planning is a very different approach for entrepreneurs,” explains Michael Dyer, managing director at BMO Private Bank in West Palm Beach. He suggests these individuals determine what it is that drives the value of the business, and how that will generate future income. A business owner whose company relies solely on their own skills in the workplace will not be able to extend earning potential past that last day in the office. If the business model can be sold, that’s a different scenario – and one far more likely to offer continuing financial support.

Dyer stresses that self-employed workers would benefit greatly from knowing what direction they want to take their business and lives in the future. A candid discussion concerning values and goals can keep business owners on track. There are retirement plans available for entrepreneurs to fit every individual need. “You need a coach if you don’t do this for a living,” Dyer says. And a financial planner can help sift through all the options.

What to Do at Every Decade

In your 20s: Save something, anything. Cover your expenses, then put any amount you can into a tax-deferred retirement program. Check with your employer to learn about your options.

In your 30s: Step it up a notch. This is the time when you can add a touch of sophistication by diversifying your investment portfolio. Educate yourself on tax options and follow a sound investment philosophy.

In your 40s: Earn, earn, earn. These are your prime earning years. The ability to save should be high by this point. You should have a better idea of your long-term goals and how attainable they will be.

In your 50s: Realize it won’t last. If your 30s and 40s were about risk management and saving, now is when you see your money may not be sufficient. Don’t panic – take a good look at your financial situation, and correct any directional issues.

In your 60s: Retirement arrives. For many, this decade holds the first years of retirement. If you have devised a retirement plan and followed it diligently, you should be able to enjoy these golden years comfortably. Enjoy the fruits of your labor – you’ve earned it.

Where to Invest

Knowing where to invest your hard-earned money can be tricky. These retirement-friendly options make sure your money keeps working for you.

Stocks: An ownership in “shares” of a corporation, which claims a portion of the business’ assets and earnings.

Bonds: A loan-type investment from an investor to an entity at a fixed interest rate for a set period of time. The interest rate for a bond is proportional to the time length of the investment.

Certificate of Deposit (CD): A savings certificate that grants the bearer the ability to earn interest for a set period of time at a fixed interest rate. The interest rate for a CD is proportional to the time length of the investment.

Qualified retirement plan: A type of employment plan established by a company for its employees. They provide tax-break benefits to both employer and employee, and come in two types: defined benefit and defined contribution. A traditional pension plan in which the employee is guaranteed a certain payout and the employer is responsible for saving to meet plan liabilities is a defined benefit plan. A defined contribution plan, such as a 401(k) plan, depends on the employees’ ability to save and invest.

Individual Retirement Accounts (IRA): A tool used by individuals to invest and manage funds for retirement. They are divided into four types: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs. Traditional and Roth IRAs allow investors to contribute 100 percent of income up to a certain amount and are established by the individual. SIMPLE and SEP IRAs are established by employers and the individual contributes.

Health Savings Account (HSA): An account created specifically to cover medical-related costs not covered by high-deductible health plans. This method provides tax savings in several forms: money contributed is tax-deductible, it grows tax-free and withdrawals for qualified medical expenses are tax-free.

Numbers at A Glance

2014 Standard Deductions & Personal Exemption

Filing Status: Married, filing jointly

Standard Deduction: $12,400

Personal Exemption: $3,950

Filing Status: Single

Standard Deduction: $6,200

Personal Exemption: $3,950

Filing Status: Married, filing separately

Standard Deduction: $6,200

Personal Exemption: $3,950

Filing Status: Head of household

Standard Deduction: $9,100

Personal Exemption: $3,950

Gift and Estate Tax Exclusions and Credits

Maximum estate, gift and GST rates: 40 percent

Estate, gift and GST exclusions: $5,340,000

Gift tax annual exclusion: $14,000

Standard deduction: A base amount of income that is not subject to tax and can be used to reduce the taxpayer’s adjusted gross income.

Personal exemption: The dollar amount that each individual taxpayer is able to deduct for him or herself or a dependent each year.

Annual exclusion: The amount of money that may be transferred by gift from one person to another each year without incurring a gift tax.

Tax deadline: April 15, 2015

We recommend consulting a tax professional such as a CPA regarding your own individual financial situation.