James Karchner, a certified public accountant with SFC Asset Management, of State College, said there’s no such thing as too soon when planning for your retirement.
“The earlier, the better,” Karchner said. “It’s hard to get a 22-year-old kid who is just starting a job to think about it, but they should.”
Whether it’s setting up a 401(k) or lining up an executor for your estate, decisions shouldn’t be taken lightly or delayed.
“If you have a pretty good head start before you reach your maximum earning years, you’ll be better off in the long run,” Karchner said.
He added: “It really depends on the age of the person I’m talking to, whether they’re in their 30s or their 40s or their 50s or their 60s. The younger you are, you have a lot of time to put away money and have a greater resource for your retirement. And the more money you can put away, the more it can accumulate over time.”
Amos Goodall is an elder law attorney, but he believes his own title is something of a misnomer.
The State College lawyer works with clients of various ages and urges people to start early when planning for the days when retirement is looming.
“Probably the primary focus group should be people in their 50s or younger,” Goodall said. “People hear ‘elder law,’ and they think they don’t need to go see someone until they’re elderly. That’s not the case. Maybe we need to think of something else to call it.”
Goodall noted some good news for most people who are thinking about the disposition of their worldly possessions. Federal law changed on Jan. 1, pushing the threshold for paying inheritance taxes up to $5 million for an individual and $10 million for a couple.
“The law field of estate planning is going through a sea change,” Goodall said. “It used to be that it was all tax driven. It’s not tax driven anymore.”
The government allows for inflation, which means the actual limit is $5.34 million before federal estate taxes kick in.
“There aren’t that many, even in Centre County, who would be over even $1 million,” Goodall said.
“Usually, people spend their money or give it away before they die.”
He noted that 35 years ago, you would pay death taxes on any inheritance value greater than $175,000. But the limit has increased steadily.
The federal government reported that the number of people who filed estate tax returns dropped from 73,100 in 2003 to about 9,400 two years ago, and continues to slide.
“Very few people have any real tax problems to consider,” Goodall said. “So they’re focusing on things they really ought to be thinking about, such as: ‘How do I really want my property to pass down? What do I want to do for my family?’
“People want to be able to control their finances, even after they’re dead, for as long as they can.”
Controlling finances first involves making decisions that help you put money away, Karchner said.
“People tend to procrastinate the things that don’t seem to be all that urgent,” he said. “But every day you waste is a lost day of savings you could have had.”
His rule of thumb for saving money:
“You ought to be looking to save 10 to 15 percent of your income,” Karchner said. “And the older you are, the higher that number ought to be.”
Investors can choose from a palette of options, including stocks, government bonds and insurance policies.
Nicholas Phelps, who operates Phelps Financial Advisors of State College, said he counsels clients to look at various investment options, including an individual retirement account (IRA) or a 401(k) setup, and to consider the risks and benefits of stocks and bonds.
“As you get closer to retirement, you probably ought to have more money in bonds, which are safer and less volatile,” he said.
Karchner said people often voice concerns about the viability of Social Security, but, he said, “I’m planning on people being able to get that until I hear differently.”
Scott McKee, a financial planner with Edward Jones in Bellefonte, listed three areas to watch when planning your retirement portfolio or insurance needs:
• immediate day-to-day expenses.
• longer-term expenses such as health care or living accommodations.
• “later or never money” that will eventually go to your heirs.
“A lot of what they need to be thinking about is what it costs them today,” McKee said, “and then factor in the understanding that the costs are only going to go up.”
Term or whole?
David Wasson, a broker with Wasson Insurance Agency, of State College, said those considering life insurance will fundamentally have two options:
• Term life, which is purchased protection to cover expenses at a set dollar value.
• Whole life, which provides the protection and also serves as an investment that gains value.
“I would look somebody in the eye and say, ‘Why do you want insurance?’ ” Wasson said.
Karchner also recommends people consider different insurance options, and decide if the insurance is to be an investment or simply financial support for costs that will eventually come.
“That’s a piece of the financial picture, and can be part of your retirement plans,” he said, noting that a term policy “has less to do with retirement and more to do with protection for your family.”
Karchner said he recommends a mix of investments, and then patience through the ups and downs of the market.
The questions become: How much money will I have when I quit working, and how long will that pot last at the rate I’ll be spending it?
Karchner said he is generally comfortable hearing people say they will be withdrawing 3 to 4 percent a year.
“How much am I going to be able to take out each year so I don’t run out of money before my life is over?” he said. “That’s the trick.
“If I’m going to retire, I’d better have thought about how much money I’ll need to successfully live on for the rest of my life.”
Software programs can project financial scenarios years, even decades ahead, taking into account factors such as changes in interest rates. Karchner said he tells clients that everything depends on a relative unknown: how long you might live.
“There’s a lot of planning that goes into these last years,” he said. “It’s a crystal ball game.”
Wills and powers of attorney
Goodall said planning for your retirement and end-of-life situations involves three important resources: a financial adviser, a lawyer and a doctor.
“You need to know where you are health-wise, and where you are financially,” he said. “And you’re going to need to know where you are legally.
“Financial advisers can help a person implement a plan, and doctors can help them live that plan successfully.”
It’s not enough to have an idea how much money you have in the bank or invested in the stock market, Goodall said. You also need to know how your various properties are titled.
Then, put down on paper your wishes “for what you want to have happen with your property when it’s no longer yours to control.”
That could mean when you die, he said, or if a health problem renders you unable to make important decisions.
Goodall said a disease such as Alzheimer’s can rob someone of that capacity, causing complications.
“I encourage people to review their documents every presidential election year, not because there might be a change in presidents, but because you should look at your documents every four or five years,” he said. “For example, if you have a living will, it probably doesn’t address Alzheimer’s.
“That’s something on people’s minds as they get older. ‘What if I get Alzheimer’s? Do I want them to prop me up and keep me alive, no matter what?’ ”
Goodall said you’ll need a collection of documents:
Which deals with concerns about what happens to your property after you die.
•A living will:
Which directs decisions about your medical treatment at the end of your life.
•A power of attorney:
Which gives someone else the capacity to make decisions if you no longer can, and can involve personal finance and business decisions.
One key step will be selecting someone to manage your affairs once you no longer can, he said.
“Often, people choose their children,” Goodall said. “But sometimes they choose people other than their children to keep them out of the picture.”
He urges people to have documents in place when they’re young, then make changes as life moves along.
“When you’re 18 years old, you ought to have a power of attorney and you ought to have a living will,” Goodall said. “And it’s always better to plan for your medical needs before you’re in crisis.”
Goodall said he asks his clients to take an inventory of their assets and personal circumstances, then begin to make decisions.
“We focus on their specific situation, look at all of the options they have, and figure out how we can best help them,” he said. “We’re all a little bit different, leading different lives.
“When we get to be 50 years old, we’ve all taken different paths.”