Road to retirement paved with good investments

By ELIZABETH CREHAN
Essex County Newspapers

It just depends on your attitude.

"Is there anything that you've always wanted to do? Another career? Do it," said Thomas T. Riquier, a certified financial planner in Danvers who specializes in retirement planning. "You may want to retire from work _ you don't want to retire from life."

But it takes careful planning _ starting even when retirement seems eons away _ to be financially secure during the golden years.

Especially, Riquier pointed out, because retirements last longer today than they used to. This is not because people are retiring earlier. "We're living a lot longer," said Riquier.

He said he plans retirements with people for more than just the next few years.

"What about the next 10 years, or 15 years or 20 years?" said Riquier. That's what he asks as he sits with his clients.

The good news is, there are more assets for people to work with today in order to put aside money for retirement, he said.

The country's increased affluence has played a big part in this.

"We now have much more disposable income than we had as a society decades ago," said Riquier, who has worked as a financial planner for 30 years. "That's caused a major change in the retirement planning process."

Riquier said that years ago, people were not retiring with a lot of money.

Beginning in 1937, people had Social Security to supply them with money after retirement. But in those days, Social Security was adequate because people were not expected to live too long after the retirement age of 65.

There were also pension plans, where companies regularly put aside money for employees in preparation for retirement.

By and large, these used to be the only means for retirement planning.

"And now, those are the basics," said Riquier.

In earlier days, people worked 40 years at the same job and retired with pension checks and Social Security, said Rick Martin of the First and Ocean National Bank Financial Center based in Newburyport. These days, he said, people change jobs more often and take a different approach to retirement.

As Baby Boomers make their way through middle age toward retirement, Social Security's knees are knocking.

"There's a chance that Social Security might not be around," said Martin.

This is perhaps one of the reasons for a trend Martin pointed out: People have been taking a more active role in their own retirement saving and planning.

"That's the big change. People are taking more responsibility trying to guide their futures," he said.

Today, people have a variety of choices to plan for retirement.

According to Martin, retirement is wisely using the money available.

"Basically, retirement is like running a small business. You've got X amount of assets, you need a certain amount of cash flow to live," he said. Retirement planning, he went on, is a matter of using these assets to create a cash flow during the years after work.

These assets come in a number of shapes and sizes.

"You want to have various pots of money," said Riquier, explaining that he sits down with his clients to see what pots of money they have and how they should consider using them.

Two pots are, of course, Social Security and pensions, he said.

Pensions are the most common, though companies have been replacing them lately.

"Because that is a big bill every year to the company, most companies have now terminated those pensions," said Riquier. "They've installed instead a 401(k)."

A 401(k) is different because an employee, not the company, is in charge of having a portion of their paycheck put aside into an account. The money could also be invested in various funds. Some companies match money put aside in a 401(k).

But whatever people want to do with the money, it's their decision.

"Every dime that we put in this account is ours. They can't take it away from us," said Riquier.

Neither a pension nor a 401(k) need to be claimed as taxable income while the money is being put aside.

There is also the opportunity to set funds aside in an IRA, or Individual Retirement Account.

And there's also the chance to invest.

"Maybe the individual finds enough money to accumulate in mutual funds," said Riquier. Or, he added, retirees could invest money in stocks and bonds. Of course, he said, people are advised to invest conservatively, not to take any big chances.

One example of having money to invest for retirement is selling the family house after the kids are grown and gone.

"For a lot of people approaching retirement, they don't want to have a three- or four-bedroom house any more," said Riquier. So, he went on, they sell it, buy or rent a smaller residence and then invest the rest.

Martin said people today have a myriad of investment options, and many different strategies to save.

He pointed out one particular mistake that is common among people planning their retirements.

"The biggest one is underestimating what they need to retire," said Martin.

He said each person's needs for retirement vary, and it's hard to pinpoint any particular amount to aim for. The rule of thumb is for people to have 70 to 80 percent of their current salary for retirement. For example, a couple that earns about $70,000 combined should have savings of roughly $500,000 in order to generate the necessary $49,000 to $56,000 per year during retirement.

When to start?

These are resources to draw from in retirement, but many wonder when to start building them up.

The resounding answer from financial professionals is to begin putting aside money ASAP.

"They should start right away," said Riquier, "the minute they have available funds to set aside, the minute they have a real job."

Martin said people who are 20 something and right out of school are in a good position to begin.

"Don't be embarrassed if it's 1 percent when you're just getting going. Just do it," said Martin.

He added that this is also the time to start an IRA.

"The sooner the better, as a general rule of thumb," said Martin. "As soon as you have an extra $50 a month, I'd start thinking about putting money aside in an IRA."

Dennis Corbell, a chartered financial consultant in Salem, said middle age is when people really start planning.

"That's when reality kicks in and you become conscious of the fact that your working years are limited now," he said.

But, added Corbell, starting to save earlier is a wise move.

"If you could throw away $2,000 in your 20s, you have dodged a big bullet in your 40s," he said.

Riquier added that people in their 40s and 50s start thinking more about retirement because they're more financially able than they were in their 20s.

"You're making more money than you ever had at that age," he said.

However, Martin said, it's people who leave retirement planning to middle age who find themselves in a tight situation _ having to save hundreds of thousands of dollars over a decade or so, rather than over a lifetime.

"Those are the people that really have to be super-aggressive," he said.

Once people actually come to their 60s, the point of retirement, Riquier said, he advises them to use money in their personal accounts.

Both Riquier and Martin said it is wise to leave 401(k) and IRAs alone if possible, since they are protected from taxes.

"If you have a choice, you'd rather have money that isn't tax deferred," said Martin. This could include personal savings or money put aside in an investment portfolio, he added.

"You can leave money in that IRA until you're 7« if you want and not take anything out of it," said Martin.

He said an optimal situation would be to leave money in an IRA for several years after retirement.

Another important part of retirement is organizing an estate plan. Riquier said most people he advises don't have the proper, necessary documents. An estate plan includes a will, a durable power of attorney, a health care proxy and a trust.

With all the choices, retirement planning can be confusing, which is why Riquier recommends people seek guidance.

"Everybody should have someone that they rely upon for advice," he said.

Looking to the future, Martin said one thing he expects to see is more government activity in retirement planning _ evidenced now by the tax-protected options for saving.

"I would anticipate that this will happen," Martin said.

Perhaps something people would see in the near future is a universal IRA. He said it would look like a flexible 401(k) that would follow a person from employer to employer and could be customized to each individual's needs.

"I wouldn't be surprised," Martin said.