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Most of these seminars or events are targeted towards not only pointing out the deficiencies in your retirement or estate plan (if you have one), but they also are interested in helping you fill the gaps with their "answer," which usually includes buying their product.
I personally have elected to utilize some of the "answers" that are out there, including life insurance, long-term disability insurance and dollar cost averaging into a family of mutual funds. As a CPA and Certified Financial Planner, I have had the opportunity to help many clients understand their retirement "realities," and to help them plan for the future.
Developing a successful retirement strategy is not only about selecting good-performing investments. It's also about avoiding mistakes. Depending on your age, there are certain key strategies that should be considered.
Age 20 to 40
Many of us have attended retirement planning seminars. Some are taught by brokerage firms, others by insurance companies or financial planning firms. Even banks get into the act.
However, "four-figure" or low "five-figure" distributions are often cashed out to pay credit card debt or car loans, finance that big vacation, and so on. The most expensive credit card finance charge is probably 18 percent per annum. There are lower cost credit cards and bank lines of credit out there.
It makes more sense to design a repayment plan for your debt than to take the "easy" route and cash in your retirement savings. The tax one pays on early retirement plan distributions begins with a 10 percent early distribution penalty (which applies if you are not yet age 59 1/2, with a few exceptions), and your marginal tax bracket is added to that 10 percent penalty.
Age 40 to 60
If you are 40 years old and you refinance to a low fixed-rate 15 year loan, your house, or should I say the bank's house, will really be yours at age 55.
As someone who funded most of his university education by working at a grocery store during college, it is possible to work and go to school. It isn't easy, but I like to think working through college helps to build a personal work ethic and other important life skills.
This might sound like a nice opportunity, but in reality you would be withdrawing funds whose tax-deferred earnings should be compounding. Also, you end up paying income taxes two times -- by having to repay the loan with after-tax funds and later when you withdraw the repaid funds in retirement years.
If you happen to lose or leave your job while the loan is outstanding, it becomes immediately due. If you cannot repay it in full, it is taxed as an early withdrawal with income tax plus a 10 percent penalty due. A home equity loan, personal family loan, or margin loan from an investment account is a better solution if you need cash fast.
Age 50 to 70
In summary, depending on your age, there are different aspects of your retirement plan that must be addressed. This brief discussion is meant to prompt you to evaluate whether or not your plan is adequate.
Kevin Van Nortwick is a shareholder at Mikunda, Cottrell & Co., CPA's. He can be reach via e-mail at kvannortwick@mcc-cpa.com.
