How much to save for retirement?

Su m m er 2014
The Quarterly Advisor
Room to Reflect
So far this summer has been relatively quiet in the market. Along with the warm weather, the season has ushered
in a period of light trading and low volatility. In fact, the last time the S&P 500 moved more than 1% was on
April 16, more than 50 trading days ago. It has given us an opportunity to discuss some fundamental long-term
financial considerations, including strategies for retirement savings and when to collect Social Security.
How much to save for retirement?
Conventional wisdom encourages saving as much money as you can in retirement accounts. However, in our opinion, it is
not that simple. As we tell clients, the key is to take a balanced approach. In our experience, clients who make contributions
to both their retirement accounts and their after-tax accounts generally have more flexibility to meet their retirement goals.
At a minimum, we recommend putting enough
dollars aside to take advantage of any employer
401(k) match. Beyond that requires evaluating
your future tax bracket, your current cash flow,
and the level of discipline you bring to building
after-tax assets.
While the tax advantages of investing in your
retirement can be significant, you should consider
your current tax rate vs. rates in the future. In our
opinion, the goal should be to minimize total taxes
– not just current taxes. If you have all of your assets
invested in retirement accounts, your withdrawals
may push you into a higher bracket or keep you in
the same bracket. Also, there is no guarantee tax
rates won’t rise in the future. Saving in two places
can help mitigate these risks.
Contribute to both your retirement bucket and
your after-tax bucket.
Remember $1,000 in a retirement account is not the same as $1,000 in an after-tax account. If you are in the 30% bracket,
the $1,000 in a retirement account is only worth $700. Said another way, you need to withdraw roughly $1,429 from your
retirement account in order to pay your taxes and be left with $1,000 to spend.
We would be happy to discuss the specific asset allocation that makes the most sense for you and your financial goals.
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When to collect
Social Security
The entire family paused for a picture at a Memorial Day picnic at Tumblebrook Country Club.
At Fierston Financial Group
There are a number of changes in the works around our office as we mark
our 20th anniversary at 29 South Main Street. We’ve begun stripping
wallpaper and painting the walls. New carpeting and office furniture are
expected later this summer. We look forward to showing you our new look
in the months to come.
In the spring, Brian and his family took a trip to the Italian countryside near
Venice, where they explored small towns, got a private tour of the Maserati
factory, waterskied on Lake Garda, and adjusted to the slower pace of life.
Brian’s son, Nathan, 14, has been on the links alongside his father lately, and
also playing competitively. He placed fourth in his first competitive event
with the U.S. Challenge Cup,
the Computer Merchant Cup
at Wintonbury, with scores of
74 and 74.
Cousins Marissa and Mollie are junior cunselors at
Renbrook’s Summer Adventure program.
This summer, Nate’s sister, Marissa,
and cousin, Mollie, both 16, are
spending their summers as junior
counselors at Renbrook’s Summer
Adventure. Mollie just received her
driver’s license and is getting accustomed to being behind the wheel.
Her big brother, William, 20, just
completed his sophomore year
at Hamilton College and is spending his summer with Breakthrough
Collaborative in Austin, Texas, where he is teaching 7th grade anatomy and
physiology to high-potential, low-income students.
We hope that you and your family are enjoying the beautiful weather this
summer. As always, please give us a call if you have anything that you would
like to discuss with us.
Best,
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When do you plan to start collecting Social Security?
The answer has long-term financial implications, yet
data from the Social Security Administration found
that in 2012, only 5.2% of men and 11.4% of women
waited until age 66, the current “full retirement age.”
Fewer still waited until age 70 – just 1.2% of men
and 2% of women. Taking Social Security as early as
possible results in a 25% - 30% reduction in benefits
compared to the full retirement benefit.
Recently, we have begun discussing complex strategies
for collecting Social Security benefits with our
clients. For households in which there is a highincome earner and a lower-income earner, it might
make sense for the high-income earner to “file and
suspend” at age 66. By “filing” for benefits and
“suspending” receipt of the benefits until a later date,
the lower-income earner can collect a spousal benefit
(50%) while the other spouse waits until age 70.
Monthly Benefit by Age of Retiree
Assumes a benefit of $2,000 at full retirement age of 66
$1,500
62
$2,000
66
$2,640
70
0
500
1000 1500 2000 2500 3000 3500
It pays to wait, because after reaching the full
retirement age, Social Security benefits grow 8% per
year until age 70. This helps provide the largest benefit
should you live longer. It also provides a higher base
for the future annual Cost-of-Living Adjustments
(COLA).
If you would like to discuss your Social Security
planning, contact us. It’s important to decide what
strategy makes sense for you and your family because
it’s no longer possible to collect payments, then
change your mind, repay the amount received, and
begin collecting a higher benefit.
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