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By: Keith Kefgen and Rosemary Mahoney-Browning  - May, 1998

Perhaps  the  Easter Bunny didn't leave you the big nest egg you were hoping for this Easter.  Don't blame anyone but yourself. Your personal egg won't hatch overnight no matter how much you believe in the bunny. Retirement is something that must be carefully planned and managed. Everyone knows  how important it is to save, but the question arises: "How much will I actually need so I can live comfortably in retirement?"

The majority of people answer with a lump sum dollar amount. However, what is generally not considered is the actual amount of income that can be derived from the lump sum. It is imperative that inflation and other income eroding forces be considered. Take for example a married couple of 40, with an adjusted net income of $50,000. Assuming a modest inflation rate of 4%, the couple would  need an  annual retirement  income of $133,292 to maintain their lifestyle (See Table).
 
 

Looking at these imposing figures, how can someone begin to prepare for retirement? Our advice is to start early and be aggressive. Take advantage of all the investment opportunities at your disposal. A few of the most common include:

IRA:

An IRA (Individual Retirement Account) is an investment that can earn and compound interest on a tax -deferred basis until withdrawn. You do not pay any current income tax on the interest, dividends, or capital gains in an IRA. In addition, anyone with earned income can establish an IRA prior to the tax year(s) in which he or she reaches age 70 1/2. In terms of contributions, you can contribute annually up to $2,000 or 100% (if your earned income, whichever is less. You can open an IRA, or contribute to an existing IRA, at any time from January 1 of a given calendar year up to April 15 of the following calendar year.

Roth IRA:

A Roth IRA has a tax structure unlike that of any other IRA. Contributions are post-tax, but growth is tax-free - once you put your money in, you never pay taxes again. It offers simpler distribution requirements, too: since you have already paid taxes up front, there are no minimum distribution requirements. Since withdrawals are not reportable income, they won't affect your adjusted gross income during retirement. The Roth IRA has one  potential downside: You pay taxes while working rather than when retired, when your tax rate is likely to be lower, so the Roth IRA loses one of the advantages of the traditional IRA.

A SIMPLE Retirement Plan:

A SIMPLE Retirement Plan is a plan adopted by an employer which allows its employees to make contributions to their SIMPLE Retirement Accounts on a pre-tax basis. The money in a SIMPLER Retirement Account earns and compounds on a tax-deferred basis until withdrawn. You don't pay any current income tax on the interest, dividends or capital gains earned in your SIMPLE Retirement Account. Only employers with fewer than 100 employees may adopt a SIMPLE Retirement Plan.

401 (K):

A 401K is a pre-tax salary reductions plan which allows you to contribute a specific percentage or dollar amount of your pay, capping at $9,500. The amount is deducted directly from your paycheck, so you won't really miss it. And, because your contribution is untaxed, it's worth more to you in the 401 (k) plan than it would he in your paycheck. where it would be reduced by income taxes.

Simplified Employee Pension (SEP):

A special retirement plan designed for smaller businesses. This type of pan is inexpensive and easier to administer than other types of plans. Employers make contributions to IRAs that are maintained by employees. Contributions are limited to 15% of an employee's compensation, up to $22,500 for 1995.

These are just some of the retirement investments to consider. We also highly recommend the advice of investment professionals. Don't worry about the cost - good advice is hard to find. And never forget that the Faster Bunny comes once a year, but your nest egg will need to last a lifetime.
 

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