Break out of these retirement myths
Enron scandals and Social Security bankruptcy fears only heighten
what most of us already know: The way Americans think about funding
their retirement has to change.
"Many people think their golden years must be
fully funded before giving any money to their children or grandchildren.
But that perspective is an historical oddity that won't last very
far into this next century," says James Walsh, lead editor
of Silver Lake Publishing's Family
Money: Using Wills, Trusts, Life Insurance and Other Financial Planning
Tools to Leave the Things You Own to the People You Love.
The happy truth is you don't need to be a multimillionaire
to start a personal dynasty a la Joe Kennedy. You merely need to
avoid commercial pitches, according to Walsh.
"Mutual funds and insurance policies are products
companies sell, no different than tennis shoes or deodorant,"
he points out. "Often it makes more sense to toss out that
stale back-of-the-napkin formula, the one that says you need X number
of dollars at X return rate because after age 62 life is about total
consumption. Instead, think about continuing to work or live with
extended family in a way that may reduce your retirement needs."
For instance, Walsh pooh-poohs defining work and play
in black-and-white terms. Play may mean quality time with your grandchildren,
so you save on shelter costs by sharing a big house in the suburbs
with your divorced daughter. Like golf? Eschew the country club
fees in favor of a part-time job on the greens or start a business
evolving around the game.
Walsh, a professional in his late 30s, currently pays
off his mortgage aggressively despite traditional advice to stretch
out that payment and invest the money instead into 401(k)s. He insists
that owning a house outright makes more sense for his lifestyle
"Think of less-cash-on-the-barrelhead ways of
preserving communal assets," Walsh repeats. "You need
to be smart, and perhaps eccentric in your own way as an owner of
The reward: Thanks to your heads-up attitude, subsequent
generations won't start their working years shouldering loads of
debt, and your retirement days are rich in variety and satisfaction.
So check out these twists to your retirement mindset:
Section 529 accounts
A growing number of Americans are turning to the new Section
529 education savings accounts. It's the investment vehicle the
federal government offered in 1996 that allows families to take
control of college debt loads. A lack of federal taxes and a bevy
of state tax leniencies rocketed 529s to the headlines.
But surprise, 529s aren't just for kids. Anyone who
intends to use this stash for educational pursuits may name themselves
the beneficiary, says Michael Murray, senior vice president of American
Skandia in Shelton, Conn. Best of all, qualified expenses include
tuition, fees, supplies, books, required equipment, room and board.
"A friend of mine retired and plans to spend
the summer studying literature in London," Murray says.
The friend joins a 57-year-old American Skandia executive
who recently retired to pursue a doctoral degree in economics.
"My fear is that people will abuse it, but as
long as it's a legitimate educational trip, it's a phenomenal opportunity,"
Finally, you control who gets the cash, so if you
change your mind after socking away the dough, change the benefactor's
name on the account.
"These 529s are very close to the Holy Grail
of investing," says Murray.
Life insurance policies represent a powerful arrow in consumers'
quivers, if only they knew to pull it out.
"I'm only 46 but I've been taught my entire life
that you don't buy life insurance for yourself; it's for those you
love," says Paul J. Moe, chairman and CEO of Living Benefits
Financial Services LLC in Minnetonka, Minn.
But the children named in these policies may already
be financially secure.
"Meanwhile, the retired couple's income-producing
ability decreases, so many times they let the policy go," Moe
Today that's baloney for many Americans over age 65.
Retirees can sell virtually any policy except group coverage to
institutionally funded/licensed life settlement companies and not
only pocket a chunk of change but save future premium payments in
the same deal.
Companies like Living Benefits use standard life insurance
actuarial tables to determine an average remaining life expectancy,
then buy the policy at a price higher than its cash value but less
than the maturity cash-in.
"Otherwise, it's not a life settlement.
It's immoral," Moe says.
He's working with state and federal legislators to
make this approach the law. The life settlement industry also has
banded to lobby congressmen to declare at least the first $500,000
as tax-free income.
Even without the current tax presents, CPAs and financial
advisers have begun urging their clients to sell off and invest
the money in long-term care plans, annuities or even an outright
gift to the children. Since September 2001, Moe has received in
excess of $1 billion worth of applications.
Max out the account?
Retirees this decade reasonably may expect to put another 30
years under their belts, so Eva Rosenberg, MBA, EA, a Las Vegas
accountant known as TaxMama, agrees with conventional pitches to
participate in 401(k)s, SEP-IRAs and ROTHs.
"My subtle opinion is that you're an absolute
idiot if you don't take advantage of these, especially if your employer
matches," she says.
But there is such a thing as saving too much, Rosenberg
"Living in the moment is good," she explains.
"It's living thoroughly out of your pocketbook that's not."
For example, one of her clients recently scraped seven
years to pay a debt, denying every luxury along the way. Now at
62, the woman has no savings account, no vacation memories and a
"I would never be that extreme. Yes, focus on
paying the debt, but make sure you still have some human contact.
You need to be able to smile every day when you get up," the
On the other hand, she applauds one police detective's
strategy. This officer retired under disability, then accepted a
part-time position traveling the country to investigate armored
"He's making quite decent money with no idea
what he spends it on. He has virtually no savings," Rosenberg
reveals. "But I'm not worried because he's collecting a non-taxable
disability and has put in enough time at his second job to secure
a second pension. And he's happy.
"Reality is, in the current generation most people
aren't destitute to begin with, and they're going to be more or
less OK," she assures.