Mind your petunias in plan(t)ing for retirement
In a way, retirement planning is a bit like gardening. Like gardeners carefully planning just what to plant in which field or plot - and please, hold back on the zucchini!! - those in the earning years need to plan for a careful balance among assets for retirement.Skip to next paragraph
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Working people, especially those on a straight salary, are used to thinking in terms of one source of income. They may be aware of other assets; individual retirement accounts, for example, which are growing, mushroomlike, in quiet, dark little corners of their financial house. But basically they are living off one stream of income.
For retirement, on the other hand, people will have to coordinate several streams of income, plus other assets, such as their (usually paid-for) homes.
The tax and other laws governing all these seem to change almost monthly. Even if they didn't, it would still be tricky to come up with a retirement budget you can feel good about. Economists' forecasts of inflation for even a relatively short term often have all the authority of the hollowly cheerful weatherman on TV.
But don't give up hope. If you're interested in planning for your retirement - in evaluating your mix of assets, to see how they all fit together, there are lots of people with lots of ideas out there.
Here is an outline of some of the important ''crops'' you should have in your retirement garden, with some tips on what's new and noteworthy for each.
Your home: Most people go into retirement with their homes paid for, or nearly so. As Carol F. Finnegan, editor of the United Retirement Bulletin, in Boston, points out, your home provides not only a place to live but in some cases income. ''You can rent part of it out,'' she notes. Of course, this may be contingent on zoning regulations, but renting out a single room, perhaps to a student, generally poses no problem from the local authorities, she adds, ''as long as there are no cooking facilities. That seems to be the critical thing.''
Then there are of course equity-access accounts, reverse mortgages, and other ways of converting equity into income. Some of these work better than others, and ''Be careful!'' is the word from financial planners.
Dale Bizzi of State Street Bank & Trust in Boston suggests that for the very wealthy - those in the 50 percent tax bracket after retirement - just taking out an ordinary mortgage against the value of their home and reinvesting the lump sum to produce a stream of income might make sense.
If you've cleverly figured out, though, that you can make a killing by investing in tax-free instruments, the IRS is already one step ahead of you. You can deduct interest on a loan if you borrow to invest - but only if you invest in taxable instruments.
''You'll be in the same bracket for interest on the loan and for income on the investment,'' Ms. Bizzi points out. To get a rough idea whether you will make a go of this mortgage-and-invest strategy, see whether your return on your investment is higher than your mortgage rate. Also, state taxes need to be figured in.
Social security. Benefits experts love to speak of retirement programs as a ''three-legged stool,'' and social security is one of the ''legs,'' along with corporate pensions and your own savings. Social security has the advantage of being indexed to inflation.
Corporate pensions. These are another story. Many companies have made ad hoc adjustments, and you'll want to do research on your own company to find out what its practice has been. But even if the company has granted some sort of cost-of-living allowance to its pensioned employees, nonce money is hard to count on.
''It's not a cut-and-dried thing you can assume,'' says Ms. Finnegan, editor of the United Retirement Bulletin. If anything, she says, there is a trend away from indexed pensions, as companies strive to hold down employee benefits. Even companies that have made ad hoc adjustments are being careful to write their contracts ''so they aren't forced into it (making adjustments.)''
Ms. Finnegan warns people not to be put off if their employers require them to kick some of their own money into a pension fund - 1 percent of salary, for example. She adds, ''If your employer offers a contributory program with some matching, you're stupid not to take advantage of it - it's like voting yourself a raise.''
Ms. Finnegan points out an important change in the law covering rights of survivorship for pensions.