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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.

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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 choices.

"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 capital."

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," Murray adds.

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 settlements
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 explains.

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 claims.

"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 dowdy wardrobe.

"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 accountant says.

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 car robberies.

"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.

-- Updated: Nov. 18, 2002


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