Retirement Planning? Start Now

Doing Business: Whatever your dream for retirement, you better start planning now.

By: Margot Carmichael Lester

We all have great dreams for retirement. Traveling the world. Moving closer to the grandchildren. Working for a charity.

Whatever your dream, it will almost certainly require cash. And that requires retirement planning.

“The key to saving for retirement is to start as early as possible,” says Penny Considine, CPA, CFP(c), with Durbin & Bennett LLP in Austin, Texas. “Saving early gives you more time to realize appreciation on your investments and allows you to benefit from the compounding of interest and dividends.”

In other words, start now.

TIP: If you don’t think you can afford to put aside enough money now, put away what you can and create a budget to set aside more later. Or, re-evaluate the importance of future lifestyle requirements vs. current needs.


“First, establish your goals for retirement, including your target age to retire and how much money you will need to fund your lifestyle for your life expectancy after retirement,” Considine counsels.

TIP: Life expectancy continues to increase each year. Make sure you check current tables so you’ll be planning with the most accurate information available.

When doing your retirement planning, focus on the controllable factors such as spending, savings and the number of years you think you will work.

Don’t forget about expenses you may incur before retirement, such as your children’s education, and those you may face during retirement, such as medical costs and inflation.

“An additional pre-retirement expense that is often overlooked is disability insurance,” Considine adds. “Ensure you have sufficient coverage while you are still healthy and can afford it.”

Once you’ve got all the numbers together, compare your required funding amount to your available retirement assets.

TIP: Your bank may have a worksheet or calculator posted on its Web site or available at an office. Consult a financial planner if you need extra help.


Retirement planning can affect your taxes, providing potential tax savings or allowing deferrals.

“In some cases, pretax money can be set aside; in other cases money can grow tax-deferred,” explains Mathew Greenwald, president of Mathew Greenwald & Associates in Washington, D.C. “Taking proper advantage of this can reduce current and future taxes. Of course, when the money is taken out at retirement, taxes will be due. But at that time most people are in a lower tax bracket, and the money has grown at a faster rate,” he said.

TIP: Any tax-deferred vehicles that you own could be subject to the “income in respect of decedent” rules in your estate, which subject them to income tax as well as estate tax. Check with your estate planner or attorney.

While you can do retirement planning yourself, don’t hesitate to seek help from your banker, accountant, attorney, estate and/or financial planner.

After all, you’re earning a good retirement.

When It Comes to Saving for the Future...

There are numerous retirement options available for self-employed professionals and small business owners:

Simplified Employee Pension This pension structure allows an employer to fund an employee’s retirement or a self-employed person to fund his or her own pension without a lot of complex paperwork.

Rules now allow an employer to make a tax-deductible contribution of either $40,000 or 25 percent of an employee’s compensation, whichever is less.

Distributions are subject to tax, based on the same rules as an IRA.

Savings Incentive Match Plan for Employees This plan is available to business owners with 100 or fewer employees. The plan, which involves little paperwork, can be structured as an IRA or a 401(k).

The maximum elective deferral for each employee this year is $8,000. An employee who is 50 or older may make an additional contribution of up to $1,000.

An employer also can make contributions on an employee’s behalf, subject to certain rules.

Section 401(k) Plans The self-employed and small-business owners can take advantage of these plans but they can be time-consuming to administrate and expensive.

401(k) plans currently allow an employee to make elective deferrals of as much as $12,000. Anyone 50 or older may contribute an additional $2,000.

Employers can match contributions beyond the $12,000 limit.

Defined Benefit Plan This plan, commonly called a pension, promises an employee a fixed benefit upon retirement.

The employer’s annual contributions to the plan are based on the amount actuarially needed to provide the fixed benefit at a normal retirement age.

Traditional Individual Retirement Account (IRA) This year $3,000 is the maximum amount that may be contributed to a traditional IRA, although an individual who is 50 or older may contribute an additional $500 without penalty.

Earnings are taxable only at distribution, so funds can accrue on a tax-deferred basis.

Anyone who is not covered by an employer’s qualified plan or who earns less than established income limits may deduct contributions.

Roth Individual Retirement Account (Roth IRA) Contributions to a Roth IRA are never tax-deductible. However, qualified distributions from the account, including accumulated dividends, interest and capital gains, are tax-free.

The total combined contribution limit to both an IRA and a Roth IRA is $3,000 for 2003, although there are limitations for adjusted gross incomes of more than $150,000 (filing jointly) or $95,000 (filing individually).