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Saving for Retirement and a Child’s Education at the Same Time

Posted on 17 December 2008 by Allgen Financial

You want to retire comfortably when the time comes. You also want to help your child go to college. So how do you juggle the two? The truth is, saving for your retirement and your child’s education at the same time can be a challenge. But take heart–you may be able to reach both goals if you make some smart choices now.

Know what your financial needs are
The first step is to determine what your financial needs are for each goal. Answering the following questions can help you get started:

For retirement:

  • How many years until you retire?
  • Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what’s your balance? Can you estimate what your balance will be when you retire?
  • How much do you expect to receive in Social Security benefits? (You can estimate this amount by using your Personal Earnings and Benefit Statement, now mailed every year by the Social Security Administration.)
  • What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
  • Do you or your spouse expect to work part-time in retirement?

For college:

  • How many years until your child starts college?
  • Will your child attend a public or private college? What’s the expected cost?
  • Do you have more than one child whom you’ll be saving for?
  • Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
  • Do you expect your child to qualify for financial aid?

Many on-line calculators are available to help you predict your retirement income needs and your child’s college funding needs.

Figure out what you can afford to put aside each month
After you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you’ll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you’ve come up with a dollar amount, you’ll need to decide how to divvy up your funds.

Retirement takes priority
Though college is certainly an important goal, you should probably focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the burden is primarily on you to fund your retirement. But if you wait until your child is in college to start saving, you’ll miss out on years of tax-deferred growth and compounding of your money. Remember, your child can always attend college by taking out loans (or maybe even with scholarships), but there’s no such thing as a retirement loan!

If possible, save for your retirement and your child’s college at the same time
Ideally, you’ll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child’s college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8 percent, you’d have $18,415 in your child’s college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment.)

If you’re unsure how to allocate your funds between retirement and college, a professional financial planner may be able to help you. This person can also help you select the best investments for each goal. Remember, just because you’re pursuing both goals at the same time doesn’t necessarily mean that the same investments will be appropriate. Each goal should be treated independently.

Help! I can’t meet both goals
If the numbers say that you can’t afford to educate your child or retire with the lifestyle you expected, you’ll have to make some sacrifices. Here are some things you can do:

  • Defer retirement: The longer you work, the more money you’ll earn and the later you’ll need to dip into your retirement savings.
  • Work part-time during retirement.
  • Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
  • Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
  • Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss).
  • Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
  • Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don’t feel guilty–a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
  • Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.

Can retirement accounts be used to save for college?
Yes. Should they be? Probably not. Most financial planners discourage paying for college with funds from a retirement account; they also discourage using retirement funds for a child’s college education if doing so will leave you with no funds in your retirement years. However, you can certainly tap your retirement accounts to help pay the college bills if you need to. With IRAs, you can withdraw money penalty free for college expenses, even if you’re under age 59½ (though there may be income tax consequences for the money you withdraw). But with an employer-sponsored retirement plan like a 401(k) or 403(b), you’ll generally pay a 10 percent penalty on any withdrawals made before you reach age 59½ (age 55 in some cases), even if the money is used for college expenses. You may also be subject to a six month suspension if you make a hardship withdrawal. There may be income tax consequences, as well. (Check with your plan administrator to see what withdrawal options are available to you in your employer-sponsored retirement plan.)

Article Written By: Forefield Inc.
Neither Forefield Inc. nor Forefield Advisor provides legal, taxation, or investment advice. All content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.

For professional investment advice on this topic contact:
Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com
www.allgenfinancial.com

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Closing the Retirement Gap

Posted on 17 December 2008 by Allgen Financial

When you determine how much income you’ll need in retirement, you may base your projection on the type of lifestyle you plan to have and when you want to retire. However, as you grow closer to retirement, you may discover that your income won’t be enough to meet your needs. If you find yourself in this situation, you’ll need to adopt a plan to bridge this projected income gap.

Delay retirement: 65 is just a number
One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. This will allow you to continue supporting yourself with a salary rather than dipping into your retirement savings. Depending on your income, this could also increase your Social Security retirement benefit. You’ll also be able to delay taking your Social Security benefit or distributions from retirement accounts.

At normal retirement age (which varies, depending on the year you were born), you will receive your full Social Security retirement benefit. You can elect to receive your Social Security retirement benefit as early as age 62, but if you begin receiving your benefit before your normal retirement age, your benefit will be reduced. Conversely, if you delay retirement, you can increase your Social Security benefit.

Remember, too, that income from a job may affect the amount of Social Security retirement benefit you receive if you are under normal retirement age. Your benefit will be reduced by $1 for every $2 you earn over a certain earnings limit ($13,560 in 2008, up from $12,960 in 2007). But once you reach normal retirement age, you can earn as much as you want without affecting your Social Security retirement benefit.

Another advantage of delaying retirement is that you can continue to build tax-deferred funds in your IRA or employer-sponsored retirement plan. Keep in mind, though, that you may be required to start taking minimum distributions from your qualified retirement plan or traditional IRA once you reach age 70½, if you want to avoid harsh penalties.

And if you’re covered by a pension plan at work, you could also consider retiring and then seeking employment elsewhere. This way you can receive a salary and your pension benefit at the same time. Some employers, to avoid losing talented employees this way, are beginning to offer “phased retirement” programs that allow you to receive all or part of your pension benefit while you’re still working. Make sure you understand your pension plan options.

Spend less, save more
You may be able to deal with an income shortfall by adjusting your spending habits. If you’re still years away from retirement, you may be able to get by with a few minor changes. However, if retirement is just around the corner, you may need to drastically change your spending and saving habits. Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return. Make permanent changes to your spending habits and you’ll find that your savings will last even longer. Start by preparing a budget to see where your money is going. Here are some suggested ways to stretch your retirement dollars:

•    Refinance your home mortgage if interest rates have dropped since you took the loan.
•    Reduce your housing expenses by moving to a less expensive home or apartment.
•    Sell one of your cars if you have two. When your remaining car needs to be replaced, consider buying a used one.
•    Access the equity in your home. Use the proceeds from a second mortgage or home equity line of credit to pay off higher-interest-rate debts.
•    Transfer credit card balances from higher-interest cards to a low- or no-interest card, and then cancel the old accounts.
•    Ask about insurance discounts and review your insurance needs (e.g., your need for life insurance may have lessened).
•    Reduce discretionary expenses such as lunches and dinners out.

Earmark the money you save for retirement and invest it immediately. If you can take advantage of an IRA, 401(k), or other tax-deferred retirement plan, you should do so. Funds invested in a tax-deferred account will generally grow more rapidly than funds invested in a non-tax-deferred account.
Reallocate your assets: consider investing more aggressively
Some people make the mistake of investing too conservatively to achieve their retirement goals. That’s not surprising, because as you take on more risk, your potential for loss grows as well. But greater risk also generally entails greater reward. And with life expectancies rising and people retiring earlier, retirement funds need to last a long time.

That’s why if you are facing a projected income shortfall, you should consider shifting some of your assets to investments that have the potential to substantially outpace inflation. The amount of investment dollars you should keep in growth-oriented investments depends on your time horizon (how long you have to save) and your tolerance for risk. In general, the longer you have until retirement, the more aggressive you can afford to be. Still, if you are at or near retirement, you may want to keep some of your funds in growth-oriented investments, even if you decide to keep the bulk of your funds in more conservative, fixed-income investments. Get advice from a financial professional if you need help deciding how your assets should be allocated.

And remember, no matter how you decide to allocate your money, rebalance your portfolio now and again. Your needs will change over time, and so should your investment strategy.

Accept reality: lower your standard of living
If your projected income shortfall is severe enough or if you’re already close to retirement, you may realize that no matter what measures you take, you will not be able to afford the retirement lifestyle you’ve dreamed of. In other words, you will have to lower your expectations and accept a lower standard of living.

Fortunately, this may be easier to do than when you were younger. Although some expenses, like health care, generally increase in retirement, other expenses, like housing costs and automobile expenses, tend to decrease. And it’s likely that your days of paying college bills and growing-family expenses are over.

Once you are within a few years of retirement, you can prepare a realistic budget that will help you manage your money in retirement. Think long term: Retirees frequently get into budget trouble in the early years of retirement, when they are adjusting to their new lifestyles. Remember that when you are retired, every day is Saturday, so it’s easy to start overspending.

Article Written By: Forefield Inc.
Neither Forefield Inc. nor Forefield Advisor provides legal, taxation, or investment advice. All content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.

For professional investment advice on this topic contact:
Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com
www.allgenfinancial.com

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Where are we going?

Posted on 26 November 2008 by Proldan

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Should I risk it?

Posted on 24 November 2008 by Proldan

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A Labor Shift Will Happen in the Future

Posted on 24 November 2008 by Allgen Financial

James O. Armstrong, President of NowWhatJobs.net, Inc., http://www.nowwhatjobs.net, also serves as the Editor of NowWhatJobs.net. NowWhatJobs.net is the resource for job and career transitions for workers 40 years old and over, Baby Boomers and Active Seniors. Read NowWhatJobs.net for skills training, relocation options, job opportunities and much more. In addition, James is the author of “Now What? Discovering Your New Life and Career After 50″ and the President of James Armstrong & Associates, Inc., a media representation firm based in Suburban Chicago.

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No, it hasn’t happened yet. But, the process has begun and it will continue as more and more employers of every possible description in America come to understand about the current and coming labor shortage in the United States.

Here are the current facts. There is already a nationwide shortage of nurses, teachers, truck drivers and warehouse workers, pharmacists, certain types of manufacturing employees and others. Plus, this analysis does not include the highly skilled worker shortage right now among technology companies in the US, which each year requires our country to admit thousands of foreign workers with temporary visas to help us get this job done in the United States. And, even after we’ve taken this step, Bill Gates, who is America’s richest and perhaps the world’s richest man, testified recently before our US Congress that the number of such highly skilled worker visas continues to be grossly inadequate to meet the current demand for such men and women.

Will this situation change for our US economy in the future? Yes, it will, but not in the way you may expect, according to recent testimony from the current Vice Chairman of the Federal Reserve before the US Senate Labor Relations Committee. He, too, predicted a labor shortage will continue and become such a significant factor that our current economic growth, which has average 3% per year for the past 10 years, will actually drop by one third to 2% per year beginning in five years because of our anticipated labor shortage.

With 77 million to 78 million Baby Boomers in America, many of which will choose at least some type of retirement, the United States already knows that that there are significantly fewer Generation Xers to take their place in the workforce. In short, our nation cannot simply manufacture people.

At the same time, Americans are living longer than ever before, thanks largely to the wonderful medical breakthroughs of recent years. In fact, one of four Americans can now expect to live until age 97 on an average. For its part, Social Security is already set to raise its previous retirement age for full benefits from age 65 until a graduated age 67, depending on someone’s date of birth. Further, not all of our Baby Boomers or Active Seniors want to stop working entirely for a variety of different reasons, which range from needing the money to simply enjoying the work.

Further, how often do we as individuals visit an Urgent Care facility near our homes on the weekend and wind up seeing a 72 year old semi-retired doctor (who used to be a surgeon in the area), who still likes to work with patients at least occasionally. We are also not surprised to see such men and women in a dentist’s office, CPA firm, engineering company, financial planning office, stock brokerage or public relations firm either. In short, professionals are allowed to continue on the job on either a full-time or part-time basis in our society essentially as long as they desire to work and on schedules of their choosing. In addition, these older professionals are already helping now to bridge the labor shortage gap in their areas of expertise.

So, what about the rest of us? Wouldn’t it be a desirable outcome to have everyone else treated in the same way as these valuable professionals are now treated in our society? Of course, the answer to that question is an unqualified “Yes.”

What is one of the greatest fears for someone, who is a Baby Boomer or Active Senior today? When someone is not yet ready to stop working completely, it is that “no one will want to hire me because I am too old.” I believe that this type of individual thinking will change in our society primarily due to economic necessity, as more and more companies affirm their commitment to add men and women over age 40 to their staff, on a full-time or part-time basis or as independent contractors.

As Baby Boomers and Active Seniors, our generation also needs to check out the government, on every level from the federal to the state to the local and to the counties all across America. These important jobs will also see a massive turnover in the coming years, as a surge in retirements take place in the area of essential government services. An acquaintance of mine with an excellent education and a high IQ recently discovered a senior IT position in my home county of McHenry County, Illinois, which followed a 14 month, previously unsuccessful job search.

Our country is right now in the beginning stages of responding to growing market pressures for available men and women to join their companies and other organizations. A noteworthy example of providing fringe benefits for part-time employment today emerges from Starbucks, which has received recognition for its forward thinking in this area. In addition, AARP several years ago established its annual awards program, which recognized top employers for its 50+ year old members. Prominent on this list are a whole group of outstanding hospitals in the US, two of which have a significant presence near my home in Northwest Illinois. Schneider National, North America’s largest truckload carrier which is based in Green Bay, Wisconsin, has also discovered the value of older husband-wife teams adding supplemental drivers to their fleet.

Will other companies and organizations make the same discoveries in the future. Simple supply and demand factors for available workers and managers will dictate the individual and collective answers to this question. Our federal and state governments may also step into this equation, perhaps even with tax incentives to companies to hire men and women above a certain age. Already, a growing number of states in the US have also passed exclusions on state income taxes for retired military staffers in a bid to capture this talented group of workers in their 40s and early 50s, who have been trained in a variety of ways at US taxpayer expense. Obviously, our retiring military men and women will need to know which states want them the most in the future, as they factor this additional input into the equation when they leave active military service.

In conclusion, while it hard to say when this shift will happen, we do know that it will gradually take place as more and more companies and other organizations realize the full dimension of our coming labor shortage and exactly how it will affect them. This shift will also be a positive one for Baby Boomers and Active Seniors alike since it will create a greater demand for them and for the continued use of their skills.

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