Retirement Planning

Be Remembered for More Than Leaving a Lot of Money

What is the purpose of investing? As summer days wind down, we suggest you take some time to contemplate this question.

Fortunately, the question is simpler than “What is the purpose of life?” but articulating the purpose of investing is not a simple task.

Simplistically, the purpose of investing is to meet long-term personal financial planning goals. These goals may include buying a new home or vacation home, paying for education, funding retirement, supporting charitable causes, and leaving an inheritance or a legacy.

Funding retirement comes first to most people’s minds since it is a large financial obligation. Leaving an inheritance or legacy also usually makes the list. But what is the purpose of leaving an inheritance or legacy? Most people will tell you they want to leave an inheritance to help their children lead a more comfortable lifestyle, enjoy family vacations, send the grandchildren to college, help pay for their weddings—the list can go on and on. Leaving a legacy is commonly a goal.

Let’s take leaving a legacy a step further. Is it simply leaving money, or could it or should it also be about leaving values and memories?

How do you want to be remembered? We hope it is for more than “my parents or grandparents left me a lot of money.”

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As summer days wind down, we encourage you to think about what you are doing to leave a legacy of values and memories. Talk to your children and grandchildren about values that are important to you. Spend some time creating good memories and family experiences. Doing so isn’t always about the amount of money you spend. It can be, but it doesn’t have to be. It can be more about what you do and how you do it.

Enjoy these final summer days! We hope your summer has included some memorable personal experiences and family time.

Our firm just marked our 24th anniversary since being founded in 1993. We are grateful for the long-term relationships we have had with our clients. We thank you for your confidence and trust. We look forward to many more years of serving your personal financial planning needs and helping you achieve financial peace of mind.

As always, please contact us with any questions, news, or comments.

Retirement Road Map: Steps to Take When You're 1 Year from Retiring

You’re in the homestretch—the final year before you retire. As you wrap up your career, don’t forget the financial steps to create a smooth transition to the retirement you’ve worked so hard for. In previous blog posts, we looked at your road map five and 10 years out from retirement. Today we’ll consider what you should do in the year before you retire.

Adjust Your Portfolio

Your portfolio allocations may need an adjustment toward more conservative investments. Meet with your financial advisor to discuss your situation and risk tolerance, and make adjustments to your portfolio as necessary.

Create a Budget

You need a spending plan for retirement that is aligned with your projected retirement income. Make sure to test your spending plan ahead of your retirement to see if you have more or less than you need.

Plan a Strategy for Social Security

Work with your financial advisor to determine the best date for you and your spouse to start taking Social Security payments.

Evaluate Pension Options

If you have a pension, decide on whether you will take a lump sum payment or monthly checks. In addition, evaluate and choose your survivor benefit options.

Save Your Cash

If you’ve been diligent, then you have been saving all along. Now is a good time to take a look at your savings and make sure you have an ample cash reserve for emergencies. A generous reserve can serve as a cushion in case you spend more of your retirement savings than you had planned for the first few years.

Review Your Medicare Options

Study your options for Medicare coverage, such as prescription drug coverage (Medicare Part D) or a Medicare Advantage plan (Part C), and choose those that are most appropriate for your situation.

Bonus: Your First Year of Retirement

Many people end up overspending in their first year of retirement. We recommend that you analyze your spending and make sure you are sticking to your budget. If you’re spending too much, it’s important that you take control of the situation before you damage your savings.

In the same vein, you want to stick to your retirement plan. We recommend reviewing the plan with your advisor to make sure all the assumptions are still correct and that any necessary adjustments are made.

Finally, keep your skills up to date. Volunteering, consulting, or part-time work can keep your resume fresh in the off chance that you’ll need to return to work as part of your retirement plan.


You’ve been diligent in planning for a comfortable life in retirement. Still, from health care to benefits, retirement planning is complex. If you think that your retirement plan may be falling short, please feel free to reach out to us. We offer comprehensive retirement planning and would be happy to discuss your situation to help give you confidence that you’re on the right track.

Retirement Road Map: Steps to Take When You’re 5 Years from Retiring

You’re five years from retirement and you’re getting excited, making plans for your life after your career. This is a critical period in laying the financial groundwork to realize those dreams. In our last article, we detailed steps to take when you’re 10 years out from retirement. Today we’ll follow up with your road map for the five years before you retire. Review Your Plan

The five-year mark is a good time to meet with your financial advisor. Together you can review your plan and make sure your savings are still on track or decide on adjustments to make up for any shortfalls.

Estimate Health Care Costs

Health care costs are expected to rise for the foreseeable future. Estimate your out-of-pocket medical expenses after Medicare benefits. Will you be able to cover them? It’s a good idea to discuss strategies with your financial planner.

Create a Long-Term-Care Plan

With Americans’ increased longevity, more of us than ever will need long-term care at some point. Analyze your potential scenarios and costs for care. Buy long-term-care insurance as appropriate given your life expectancy and assets.

Consider Housing

Do you want to stay in your home when you retire? Or will it be an ideal time to downsize? You and your spouse should consider your options and plan accordingly.

Retirement planning is complex. Health care and long-term care especially can offer unexpected costs in retirement. That’s why you want to plan thoroughly. If you’re feeling overwhelmed by these or any other needs in retirement, feel free to reach out to us. We offer comprehensive retirement planning and would be happy to work with so you can feel confident that you are on the right track for the retirement you envision.

Retirement Roadmap

Retirement Road Map: Steps to Take When You’re 10 Years from Retiring

You’re 10 years out from retirement, and you’re looking forward to travels and grandchildren. But don’t coast yet. This last decade is crucial to achieving the retirement you envision, and mistakes at this time could hurt your ability to achieve that vision. Over the next three blogs, we’ll look at what you should do one, five and 10 years out from your retirement date. Let’s start with 10 years:

Ramp Up Your Savings

In retirement, you make a transition from saving money to using that money for income. You want enough money to live comfortably in a retirement that could last 30 years or more. To take full advantage of your saving opportunities, we recommend talking to a financial advisor to figure out a target savings amount. Then consider whether these ideas can help get you to your target:

  • Study your budget. Figure out where you can adjust to spend less and save more.
  • Take advantage of catch-up contributions. Once you reach 50, you can set aside even more in your retirement accounts. Take advantage of the opportunity if you can.
  • Max out your HSA contributions. With the increased cost of health care, maxing out your HSA and avoiding withdrawals could increase your ability to pay for medical care in retirement.
  • Consider delaying retirement. If you’re short on savings, delaying retirement can give you more time to achieve the retirement you want.

Get a Handle on Debt

The decade before you retire is an opportune time to take a look at your debt and determine what you can pay off. Start with your high-interest credit card and installment debt, and pay it off as quickly as possible. You can also determine if paying off your mortgage before you retire would be a good move for your situation.

Analyze Portfolio Risk

As investors approach retirement, they generally move from a portfolio with riskier investments to a portfolio with more conservative, stable investments—but the amount of risk you should take is unique to you. We recommend talking to a financial advisor to determine the proper ratio of equities to bonds to support your goals.

Manage Your Career

You may be close to retirement, but you still need to work. Forging strong relationships and skill sets can reduce the chance of losing your job. In addition, if you’re planning on an encore career, now is the time to figure out what that would entail. That way, you won’t be set back by any advance requirements, like a college course or internship.

Estimate Your Social Security Income

If you haven’t already, visit the Social Security Administration’s website at to estimate the benefits you’ll receive. You can include these expected benefits in your retirement income projections and saving calculations.

Coordinate with Your Spouse

In planning for your future, you and your spouse will want to work through all these steps together to determine the strategies that can help you best as a couple. Consider scenarios where one of you works longer than the other to see how those strategies could ease your income burden.

Retirement planning is a complex process. We hope these steps will help you as you start the countdown to retirement. If you would like some additional guidance, we’d be happy to talk with you. Our comprehensive retirement planning can help provide confidence that you’re on the right path to a comfortable retirement.

Retirement Roadmap

Retirement Planning for High-Income Professionals: Additional Opportunities to Save

Retirement planning can be challenging for high-income earners. Contributing $18,000, or $24,000, or even up to $60,000 a year to a retirement plan may not be enough for a person earning $300,000 or more a year who wants to enjoy the same quality of life in retirement. You may find, like many high-income earners, that the annual compensation limit stymies your ability to put sufficient money aside for retirement. For 2017, that limit is $270,000, which is the point where the IRS caps the compensation that can be used in employer-matching contributions. That means if you earn $400,000 per year, $130,000 of your salary will not be factored into the tax-deductible employer contributions that you may receive.

Even without such caps, however, the yearly elective deferral limit of $18,000 (plus the $6,000 catch-up contribution allowed for those age 50 and over) is usually insufficient to support the lifestyle in retirement that high-income earners had during their working years. Consequently, you may want to consider alternative investment options, some of which we outline below.

Invest in an After-Tax Brokerage Account

After-tax brokerage accounts can be attractive to high-income earners because of their flexibility. Add to that the fact that dividends and capital gains qualify for a special 15% tax rate (20% for very high-income earners) and these accounts can be very appealing. However, there are pluses and minuses to consider.

In the plus column, although you make the initial investment in after-tax dollars, you will not pay tax on the increase in value for your account as long as you are holding on to it. Additionally, you have no limits for withdrawing income, and you will not incur penalties for early withdrawals. When you decide to liquidate the account, you will pay capital gains taxes but at a favorable tax rate (which is lower than ordinary income for high earners) provided that investments are held for more than a year. If you incur a loss on your taxable brokerage account investment, you can sell it, claim it as a capital loss on your tax return and get a tax break.

On the minus side, since these accounts are readily available and not limited to post-retirement use, you may be tempted to use the funds during your working years. If you resist this temptation, however, a taxable brokerage account is one of the better retirement planning options for those whose income exceeds the $270,000 annual compensation limit. In most cases, such an account will be more flexible and beneficial than a nonqualified annuity account.

Look into a “Backdoor” Roth IRA

“Backdoor” Roth IRA plans will appeal to only a limited number of high earners since you cannot take advantage of one if you have IRA rollovers from previous employers or traditional contributory IRAs. However, if you have not changed employers or you have always been self-employed and have an individual 401(k) plan, this strategy may be right for you.

The backdoor strategy allows you to convert a traditional or nondeductible IRA into a Roth IRA. No income limits govern this conversion, and you can open a nondeductible IRA and immediately convert it into a Roth IRA with few or no conversion taxes. In contrast, conversions from existing traditional IRAs or IRA rollovers will likely involve tax implications.

Because there are some definite pros and cons inherent in this strategy, speak with your financial advisor before putting one into place.

Maximize HSA Contributions and Delay Withdrawals

Health savings accounts (HSAs) are attractive options for high-income earners, as they are the only type of account that is triple tax-free: Contributions are tax-deductible, earnings are tax-deferred and withdrawals are tax-free as long as they are used for qualified medical expenses such as physician visits, laboratory tests, medications, dental care and eye care.

HSAs are geared for those who have high-deductible health plans, with deductibles over $1,300 for individuals and $2,600 for families. As of 2017, individuals may deposit up to $3,400 per year into an HSA, and families may contribute $6,750. An optimal strategy for many high-income earners is to contribute the maximum amount allowed to a health savings account each year and refrain from withdrawing from the account while working. Instead, pay your medical bills out of your regular after-tax income, and allow the HSA to accumulate so it can be used as supplemental income in retirement for health expenses incurred at that time.

After age 65, you may withdraw HSA funds for nonmedical expenses, but that money will be taxed as ordinary income. Although HSAs can supplement retirement income, it is generally advisable to max out other retirement contributions before employing this strategy.

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See If Your Employer Offers an After-Tax 401(k)

An after-tax 401(k) plan allows you to contribute after-tax dollars up to $54,000. Earnings from your after-tax 401(k) contributions will grow tax-free until you withdraw them, at which point they will be taxed as ordinary income.

Options for the Self-Employed

Unless your employer makes substantial contributions toward your retirement or will provide you with a pension (also called a defined benefit retirement plan), it may be to your advantage to work for them as an independent contractor rather than as an employee. Self-employed individuals can contribute up to $54,000 to a profit-sharing 401(k), which is quite a bit more than the $18,000 allowed for employees.

Those who are self-employed can also consider contributing to a personal defined benefit plan. With a defined benefit plan, you project your annual benefit during retirement and then calculate the annual contribution you need to make to reach that amount. In some cases, annual contributions for personal defined benefit plans may reach $100,000 or more, which allows small business owners to save more than what is allowed under other retirement plans. The caveat, however, is that defined benefit plans have setup and administration fees that other plans do not. Plus you are required to contribute to the plan for at least five years. Because of this, these plans are best suited for those who can contribute at least $80,000 annually.

Those who have businesses or earn consulting income outside of their regular jobs can open a Simplified Employee Pension IRA (SEP-IRA) or an individual 401(k) account. The latter involves greater administrative responsibilities but may allow for higher annual contribution levels for the same income level based upon how those contributions are calculated. This page on the IRS website outlines the specifications and requirements for each of these plan types.

The above investment options are a few of the ways in which high-income earners can maximize their retirement savings. Speak with your financial advisor about the pros and cons of these options to determine which ones would be best for you in light of your financial goals and needs.

Saving for Retirement: Breaking Out of the One-Size-Fits-All Approach

You may have heard that investing has rules of thumb when it comes to saving money for retirement: Start at a certain age, set aside a certain amount of each paycheck and voila! When you retire, you're good to go. Those rules of thumb may work for some people, but life presents too many variables—the age at which you started saving, the income you made and when you made it—to make any strategy one-size-fits-all. Yet it's in our nature to want rules, to have structure, so we can feel that we are on the right path. A retirement saving rate that changes with your income could provide a viable framework, especially for professionals whose income climbs steeply over time.

Rules of Thumb

Say you're starting out in your career and you want to begin setting aside money for retirement. You know that you need to save enough to replace your income in retirement (called the replacement rate). How much do you save?

The short answer is: It depends. It depends on the age at which you are starting to save (the earlier the better), and it depends on the probability of success you want to achieve with your replacement rate. Let's use a table in a Dimensional Fund Advisors study that shows the saving rates a professional would need in order to achieve a 40% replacement rate. If that professional wanted 95% success at achieving that replacement rate, they would need to start setting aside 16.8% of their income at age 25. If they waited till age 30 to start saving, they'd have to put 19.5% away. And if they didn't get started until age 35, their lifetime saving rate would be a whopping 23.8%!

The High-Wage Earner

Professionals whose income climbs steeply toward the latter part of their careers have difficulties of their own using a one-size-fits-all approach. They don't get to put their money in early and allow compounding to increase their savings.

What's more, the DFA study broke down saving rates by preretirement income, using the same 40% replacement rate as the goal. It found that professionals in the $98,355–$129,945 range at the end of their careers would need a 20.5% saving rate. In contrast, someone making $21,716–$29,307 would need an 8.8% saving rate.

Obviously, people who are going to end their career with higher incomes will need a higher saving rate, but as the study pointed out, no one knows what their final income is going to be. What's more, we have different priorities at different ages. For example, when we're younger, we spend more and save less. We're getting established and putting our earnings toward that end. As we get older—and especially as our income climbs—we spend less and save more, putting aside more of our salary for retirement.

An income-based approach to retirement savings takes those priorities into account and allows flexibility for professionals whose income climbs over time. Using a saving rate that increases as income increases, DFA found the following rates for a professional seeking a 95% chance of success for a 40% replacement rate:

Income Range Saving Rate
≤ 25,000 2.8%
25,001–40,000 5.7%
40,001–50,000 8.5%
50,001–60,000 11.3%
60,001–70,000 14.2%
70,001–85,000 17.0%
85,001–100,000 19.8%
100,001–130,000 22.6%
130,001–180,000 30.6%
> 180,000 34.0%

The same study also considered probability rates of 90% and 50%, but we'll just keep it simple here to make our point: that an income-based saving rate allows for the demands of age and income variability. As shown in the table, the reduced saving rates for lower income levels would be consistent for someone starting out in life. The higher rates would peak when salary peaks, and seem to fall in naturally with a family that is in saving mode.

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It's important to go over your numbers with your financial advisor, who can help you decide whether the amount you have put aside will be sufficient for your retirement. And regardless of the scenario you choose—a saving rate that climbs and falls with your income, or a simpler rule of thumb—two takeaways from this article should be apparent: Start saving early—the earlier the better—and be consistent about saving. Those are your two most important factors for success.


Massi Di Santis and Marlena I. Lee, Income Based Saving Rates, DFA, June 2013.

Steps for High-Earning Professionals to Cut Their Spending, Save for Retirement

Are you overspending? As a high-earning professional, your answer could very well be “yes.” Everyone knows that saving money is essential to achieving financial stability and a prosperous future, yet many high-income professionals tend to overspend. The higher one’s income, the easier it is to spend and not overdraw one’s checking account or run up credit card debt. The higher one’s income, the more that must be saved to maintain a high-income standard of living in retirement when the paycheck stops. No doubt, striking the right balance between spending and saving for your retirement can be a challenge—but it’s not impossible. It is important to be sure that you are spending money on things that are important to you and reflect your priorities and values. The first step is to get a handle on how much you’re spending, then make adjustments. Here’s how:

Calculate how much you spend. Take a moment to review your W-2, and deduct your taxes from your gross income. The net amount serves as the foundation for your budgeting and spending decisions.

Review your W-2 and year-end payroll stub for expenses. While you still have your W-2 in hand, determine the expenses that are being deducted from your paycheck—for example, your 401(k), health insurance or commuter benefit program. For couples, a simple spreadsheet can combine incomes and taxes and calculate after-tax spendable money. Lastly, you may find that looking at your income and expenses as a monthly average is easier to understand than a larger annual number.

Review your bank and credit card statements. In this step, you will continue to determine your expenses. Take a look at your bank and credit card statements, and write down the remainder of your expenses—mortgage or rent, utilities, car payments and school loans, for example. How much do you spend dining out? Attending concerts or other performances? On your travels? Some credit card companies provide an annual summary statement that itemizes expenses and totals by categories such as travel, entertainment or clothing. Or consider using a software program like Quicken or a website like to categorize your expenses. Your bank website may have similar tools to use.

Prioritize your expenses. Now that you have tracked your expenses, categorize them into three groups: fixed costs, financial goals and discretionary spending. Fixed costs comprise your expenses that do not change from month to month. They include essential expenditures such as your mortgage and fixed recurring expenses like your cellphone, subscriptions and club membership dues. Your financial goals, meanwhile, include your short-term and long-term objectives, like saving for retirement. Finally, your discretionary spending is made up of nonessential expenses such as vacation getaways and dining out. Ask yourself if you are spending too much on things that are not important to you.

Adjust your expenses. Fine-tune your expenditures so that your fixed costs are no more than 50% of your original expenses, your discretionary spending is 30% and your financial goals are 20%. High-income people also need to save more than the legal limits for IRAs and 401(k)s. Do not assume that if you are maxing out your retirement plan contribution, then that is as much as you should do.

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If your spending in any category is too high, brainstorm for solutions. For example, if you want to reduce your fixed expenses, you might consider moving to a smaller, less expensive house. If you need to curtail your discretionary spending, you might stop eating out as much and instead cook your own meals and bring them to work. Other practical solutions could include postponing the purchase of a big-ticket item at least overnight so you can think about it. Again, consider priorities. If eating out is important to you, be willing to spend less money on clothes, a car payment or other living expenses.

Ben Franklin said, “A penny saved is a penny earned.” Your financial stability in the future is largely dependent on the spending decisions you make in the present. By knowing your current expenses and paying attention to them on an ongoing basis, adjusting them as necessary, you can take control of your spending and feel more confident about your retirement.

Save for Retirement Medical Expenses in a Triple Tax-Free Way

Medical expenses are a primary concern when saving for retirement. You want to ensure that you have the financial resources for optimal health care in your senior years, and this is where a health savings account (HSA) comes into play. HSAs are the only savings and investment accounts that are literally triple tax-free: tax-deductible contributions, tax-free investment accumulation and tax-free withdrawals for qualified medical expenses. In this way they have an advantage over either a 401(k) or Roth IRA. Consider the HSA as a tool that can supplement your retirement income for future medical expenses. Given that Medicare “means testing,” or charging higher Medicare premiums for people with higher income, has already begun indicates that high-income people should be concerned about Medicare coverage in retirement and be better prepared to pay their own way.

According to the 2015 Retirement Health Care Costs Data Report by HealthView Insights, average lifetime health care expenses for a 55-year-old couple retiring in 10 years will amount to $463,849. This assumes that the life expectancy is 87 for men and 89 for women. In addition, the U.S. Department of the Actuary’s projection for health care inflation is around 6% for the next 10 years. What action can you take? Prepare for your future medical needs while you’re still working. An HSA can help you do that.

What Is an HSA?

A health savings account is an account that is triple tax-exempt and targeted toward people with a high-deductible health plan (HDHP). A health savings account can benefit high-income earners because it will allow you to save above and beyond what you are already contributing to your 401(k) or IRA. For an individual, the maximum annual HSA contribution limit is $3,350; for families, it is $6,750. A catch-up contribution of $1,000 a year is also available for those 55 years and older.

Withdrawals can be made from HSAs to reimburse out-of-pocket medical expenses in a high-deductible plan, but for future retirement benefits, current withdrawals should be limited or avoided in order for the investment balance to accumulate. This means that current medical expenses have to be paid from current income or other sources, which is another reason why HSAs are most suitable for high-income people and people who are generally healthy with few current medical expenses.

Who Is Qualified to Open an HSA?

According to the IRS, you are eligible to open an HSA if you are covered by an HDHP, which has a minimum deductible of $1,300 for individuals and $2,600 for families. You should neither be enrolled in Medicare nor have other health coverage except for a few exceptions permitted by the IRS. You also cannot be claimed by your spouse or another person as a dependent.

Why Get an HSA?

Health savings accounts have become increasingly attractive to high-income earners because of their triple tax benefits:

  • Tax-deductible contributions: Whether HSA contributions are deducted from your payroll using pretax dollars or made using post-tax dollars (you’ll receive a tax deduction), these contributions are tax-deductible.
  • Tax-free growth: The growth in earnings, interest and dividends is not taxable.
  • Tax-free withdrawals for qualified medical expenses: You can withdraw funds at any time without being taxed if you’re using the money for qualified medical expenses.

It’s important to note that if you withdraw funds for nonmedical reasons before you turn 65, you will be taxed for income and pay a 20% penalty. When you withdraw money after age 65 for nonmedical purposes, it will be taxed as income. That’s why an ideal approach for HSAs is to contribute money during your working years and let that money sit, withdrawing from your account after you’re retired and, ideally, for medical reasons only.

Finally, another advantage of an HSA is that it is “portable,” which means that even if you move to another company or stop working altogether, your account, along with its balance, stays with you. Simply put, your HSA is yours alone.

How Can an HSA Supplement Your Retirement Income?

First, if you are 55 and contribute to an HSA, you can potentially see a balance of $60,000 in 10 years, according to the Employee Benefits Research Institute. This assumes that you contribute the maximum amount permitted and that you earn a 5% rate of return. If you are 45 and maximize your contributions, you could have a balance of $150,000 by 65. You can use an HSA calculator to compute your possible future balance.

Second, if you withdraw from your HSA for medical reasons at any time, you won’t be taxed. Withdrawing for nonmedical reasons starting at age 65 subjects you to ordinary income tax just like your 401(k) and other retirement accounts. You won’t have to pay a penalty. You also have the option to keep the money growing and not use it. The longer you defer, the potentially higher the returns. Unlike other retirement accounts, you are not obliged to make required minimum distributions. You can let your money sit in the account, growing, and rest assured that you have a fund to tap into when you have medical expenses. You can also designate a beneficiary to inherit your HSA.

To supplement your retirement income, max out your contributions to your IRAs or other retirement accounts during your working years. Then max out your HSA and don’t withdraw from it until you’re retired. If you can’t afford to max out both, an alternative strategy may be slightly reducing your 401(k) or other retirement accounts and modestly funding an HSA. You might consider an HSA as a save-it-for-last account, using it for medical purposes in retirement and drawing on it for nonmedical expenses only if absolutely necessary.

We shouldn’t assume that Medicare will cover all of our medical care in retirement. If one takes into account the facts that health care inflation is above average and Medicare benefits may be limited for high-income people in the future, opting for a health savings account now as a safety net may be a wise decision.

Retirement Plan Contribution Limits for 2015

The IRS has increased the amount you can contribute to your 401(k) in 2015. Income phaseout ranges for traditional and Roth IRAs have also changed.

You Passed Your Driving Test, But Can You Pass a Retirement Test?

The Wall Street Journal recently published a thought-provoking article on preparing for retirement. Below, we've highlighted a few of the questions from the quiz, so you can see how you would fare. You may find that passing this retirement test is harder than passing your driving test. You can take the quiz yourself online at The Wall Street Journal website.

"Passing a retirement test may be more difficult than passing your driving test."
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Take This Retirement Test

1. Research by Fidelity Investments recommends that workers should aim to save what multiple of their ending annual salary at age 67 in order to meet basic income needs in retirement?

Workers need to save eight times their final annual salary if they hope to meet their basic retirement income needs, according to the Fidelity study. This estimate assumes you start saving at age 25 and live to age 92. But some estimates are even higher. The Wall Street Journal also reports that an Aon Hewitt study concluded that a person would need a nest egg of 11 times their salary to retire at age 65.

What do these numbers mean for you? If your family has an annual income of $100,000, you would need a nest egg of between $800,000 and $1,100,000 to meet your living expenses in retirement.

2. What is the average age at which current retirees say they actually retired—and what is the expected retirement age among current workers?

As you know, what people want to do and what they actually do are two different things. While many reported that they expected to retire at age 66 (up from age 60 in 1996), the average retirement age among current retirees is 61, according to a Gallup poll published in May (that's up from age 57 in 1993).

People are beginning to see the impact of The Great Recession on their savings and investments as well as facing the reality of potentially longer life expectancies and uncertainty over health care expenses. There's one advantage to working longer, however (aside from being able to save more for retirement): The Gallup poll also found that people between the ages of 60 and 69 who work enjoy better emotional health than those who stop drawing a paycheck. Bottom line: Work provides important non-economic benefits.

3. What percentage of surveyed workers say they plan to continue working for pay in later life—and what percentage of current retirees say they have worked for pay?

Again, what people say they are going to do and what they do are often two entirely different things. While nearly 70% of people say they plan to work for pay in retirement, only one quarter of retirees actually do so, according to a study by the Employee Benefit Research Institute. That's a pretty big gap between expectations and reality. Granted, those results could be partly due to surveying people at different stages of their life (I'm not sure that they asked the same people both before they retired and after they actually retired). But if I had a nickel for every time someone said, "I'll just do some consulting in retirement...."

Perception vs. Reality

There is much to be learned about retirement and big differences between perception and reality. Contact us today for an appointment to start learning more about retirement and making your retirement dreams a reality!  

Retirement Saving Starts with Your Teen

Is your teenager thinking about retirement? Have you ever wondered how to teach your teen about investing? Whether it's your child or grandchild, a Roth IRA is a great way to start a teen's retirement savings and teach them about investing.

The Advantage of a Roth IRA

Why a Roth IRA? Teenagers are in a very low tax bracket, so a traditional IRA (where contributions are tax deductible) will be of little value. A Roth IRA does not offer a current tax deduction, but withdrawals in retirement are tax-free, there is no required minimum distribution at age 70½, and there are special provisions for early withdrawals if needed.

You can contribute 100% of your teen's W-2 income to a Roth IRA, up to $5,000 for 2012 or $5,500 for 2013. You can contribute up to $400 of "self-employed" income (such as what they earn from baby-sitting or lawn mowing) to be reported on Schedule C of their tax return; in addition, you'll avoid paying any FICA payroll tax on up to $400 of that income. So, you can even start a Roth IRA for a 12-year-old who does some baby-sitting or lawn mowing. For example, if your 15-year-old makes $1,200 working at a fast food joint or retail store, you can contribute up to $1,200 to a Roth IRA.

"A teen's Roth IRA is typically funded by a parent or grandparent." [Tweet This]

You can continue funding a child's or grandchild's Roth IRA into their early 20s, as they start their first job out of college. The ability to contribute to a Roth IRA is phased out for those who make over roughly $100,000 (which would likely only apply to professional athletes or rock stars). If you fund a Roth IRA from age 15 to age 30 or so, your teen can be well on their way to retirement.

Start Teaching Your Teen About Investing

The Roth IRA is a great way for your teen to learn about investments and see how the contributions make their Roth IRA account grow.

You can still open a Roth IRA for 2012 income. The deadline is the date you file their 2012 income tax return, prior to or on April 15, 2013.

Your teen may not thank you for many years, but isn't that typical?

About Bruce J. Berno, CFP® Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit

Inflation: What Difference Does a Few Pounds Make?

Inflation is a major threat to retirees and a risk to long-term investors of any age. What difference does inflation make?

  • A 3% inflation rate will cause prices to double in 24 years or by the time a 65-year-old reaches age 89.
  • A 4% inflation rate will cause prices to double in 18 years or by the time a 65-year-old reaches age 83.

Put another way, inflation will cut your standard in living in half over either of those time periods. Ouch!

On a more personal level, gaining three pounds a year may not seem like much, but 10 years later you are 30 pounds heavier. Has anyone read that America has an obesity problem?

Who hasn't had grandpa tell them that when he was growing up, movies were a quarter and a candy bar was a nickel? Who remembers buying a Volkswagen Beetle for $3,000?

Since 1913, inflation has averaged just over 3%. At its ugliest, it ranged from 10% to 13% a year in 1979, 1980 and 1981.

Understand and remember the importance of inflation. It is significant in the long run. Like 30 pounds ago!

About Bruce J. Berno, CFP®
Bruce J. Berno, CFP®is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit

Where Does Your Money Go?

Are you saving more money than you want to or planned? Probably not. Does it seem that even when your income goes up you can’t save more money? Where does your money go? How much money are you saving? If you have a hard time answering these questions―and most people do―there are some easy solutions.

First, try a manual or “back of the envelope” approach. Start by identifying your annual income from your W-2 tax wage statement or year-end payroll stub. Then identify how much you contributed to investment accounts like your 401(k), IRA or 529 college savings plans. Next, calculate how much cash you accumulated or depleted by comparing your bank account balances from the beginning of the year to your balances at the end of the year. If your bank account balances were higher at the end of the year than at the beginning, you accumulated cash. If they were lower, you depleted some cash.

To calculate the percentage of your income that you saved, divide the amount you contributed to investment accounts plus any cash that you accumulated minus any cash that you depleted by your annual income total. For example, if your annual income was $100,000 and you contributed $15,000 to your 401(k) and accumulated $5,000 in your bank accounts, you invested or saved $20,000 or 20% of your income. That is very good and you may be able to stop here, unless you want to learn more about where you are spending your money so that you can try to save even more.

If your income was $50,000 and you contributed $1,500 to your 401(k) and $500 to a 529 college savings plan and your bank balances remained about the same, then you saved 4% of your income. Obviously, the higher your income, the greater percentage you should be able to save. However, it doesn’t always work out that way, as people tend to ratchet up their lifestyle spending as their income increases. As a general rule, you should try to save 10% to 25% of your income. Saving 5% is better than nothing, but it’s probably not enough to accumulate a retirement nest egg in the long run.

What technological resources are available to help you boost your savings? You have a wide range of options to choose from. Your bank website may have a resource to help classify and summarize expenses. Your credit card company may provide an annual statement that shows you how much you spent in certain categories. Check out the “restaurant” or “entertainment” categories and you may be shocked how the discretionary expenses add up.

Two popular software packages that can help you track your spending and saving are Quicken and Quicken is a PC-based software and is web-based. They are both owned by the same parent company, Intuit. is free and automatically collects your transactions from your bank and credit card accounts. It assigns an expense category based on the merchant code that is tracked when you swipe your credit card or debit card. For example, if you swipe your card at Kroger’s it will be classified as groceries and if you fill up your tank at Speedway it will show as gasoline. You can manually edit any entries in and you do have to manually categorize any checks your write and any cash transactions.

Quicken is similar to, but you have to manually download your transactions. Credit card transactions are automatically categorized, just as they are with Quicken has a much wider range of reporting capabilities and more flexibility in choosing historic time periods for reporting. Quicken also has an “Easy Answer” function to answer the questions “How much did I pay to…”  or “How much did I spend on…” for a wide range of time periods that you can select. Quicken also offers bill pay and check writing capability to further simplify your cash management. Different versions of Quicken are available that cost between $60 and $90 before rebates and discounts.

Whether you use manual or software methods to track your income, expenses and savings, the process is enlightening and well worth your effort!


About Bruce J. Berno, CFP®

Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit