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Retirement Roadmap

While all of us would like to be financially comfortable in retirement, many of us do not plan effectively to achieve this goal. Taking care of present-day concerns often seems more important than planning for future needs. However, if you wish to enjoy a financially comfortable retirement, you must begin planning to do so early. The longer you wait, the harder it will be to achieve your goals.

Effective retirement planning requires the identification of specific goals and the implementation of an investment plan designed to achieve those goals. The first step is the identification of the amount of income you will require in retirement to maintain your preferred lifestyle. Most financial planning experts suggest using 70% to 80% of your pre-retirement income as a benchmark. Pre-retirement income refers to the amount of income you expect to be earning at the time you retire, not necessarily your current income. When projecting your pre-retirement income, you will need to take into consideration the effects of inflation over the years until retirement. For example, given a 4% annual rate of inflation, an individual who earns $40,000 today would earn $87,645 in 20 years even if he or she only receives annual cost of living raises.

While Social Security and a company pension may provide you with some income during retirement, it is unlikely that they will be able to wholly satisfy your retirement needs. Most individuals will need to rely on their savings and income from their investments to satisfy the majority of their retirement income needs. As such, it is essential that you develop and implement as early as possible an investment plan that is reasonably designed to achieve your retirement goals.

Thankfully, there are a variety of investment options available to help you save and invest for retirement. However, you must be familiar with these options, and the benefits they provide, if you are to take full advantage of them. This guide will address some of these investment options and will help you determine the amount of money you should be saving to achieve your goals

Retirement Benefits
By Chritine Ngeo Katzman

Retirement plans benefit both your employees and your business. Employees are clamoring for retirement benefits, and small businesses are just beginning to listen. Less than 25% of companies with fewer than 100 employees offer a retirement plan, compared to 85% of companies with more than 100 workers, according to the 1999 Small Employer Retirement Survey by the Employee Benefit Research Institute (EBRI).

"In a competitive workplace, we've seen a constant increase in the employees' interest in [retirement plans]," says Brian McCarthy, small business marketing manager for Genworth Asset Management Services.

Because the bulk of their money and time goes toward running the company, business owners often believe they don't have the administrative support to offer retirement accounts or that providing one will cut into their bottom lines.

In the EBRI survey, 50% of the 600 respondents said that their revenue is too uncertain to commit to a plan. In addition, 53% said that employees prefer wages and other benefits, while 42% said their workers were mostly seasonal, part time or had a high turnover rate.

In actuality, however, retirement plans provide advantages not only to the employees, but also to the business owner. The amount contributed by an employer can vary depending on annual profits, and some plans like 401(k) plans - do not require a company contribution at all. Implementing a plan reduces a company's income tax burden and helps to attract, retain and motivate employees. In addition, some plans allow owners to receive a bigger portion of retirement allocations.

Benefit options include a 401(k), a SIMPLE (Savings Incentive Match Plan for Employees) IRA and a Simplified Employee Pension (SEP) plan. All three tax-qualified retirement plans let companies make deductible contributions, which grow tax-deferred and are not currently taxable to the employees.

401(k) plans offer the most flexibility and can be entirely funded by the employees' pre-tax payroll deduction. The company may-but is not obligated to- contribute to the plan through discretionary matching and profit sharing funds. Because businesses have control of their contributions through vesting schedules and eligibility requirements, 401(k) plans must meet special nondiscrimination rules.

SIMPLE IRAs are available for employers with 100 or fewer eligible employees and are the most popular option. Employees can make elective deferrals into the plan on a pre-tax basis, and employers must provide a matching or non-elective contribution. Employer contributions, however, can change based on the company's yearly revenues. Contributions made to employee SIMPLE IRA accounts are immediately 100% vested and therefore not subject to nondiscrimination tests and reporting requirements.

SEP IRAs are generally the easiest to administer. The employer makes contributions to an IRA on behalf of eligible employees, based upon a discretionary percentage of compensation. With the introduction of SEP and SIMPLE plans in the late 1990s, the "government makes it easier to let small businesses enter the market.

(c) 2004 Your Business Magazine


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