PKS Investment Advisors' Matt Repass offers some holiday reflections and expert advice on how to make our golden years as carefree as those of our parents
No sooner than the last ghost or goblin leaves your door that final evening of October, our thoughts turn to the holidays. The parties, the travel, the houseful of relatives, bowl games, overeating, overspending — overwhelming — and finally… just over. Then, we awaken from our tryptophan-induced malaise the first week in January, the only reminder of the season being the 10 extra pounds we gained, asking ourselves, Why do we do this each and every year? My answer: love of family. Even though the holidays can push our limits mentally, physically and financially, love of family strikes a chord in each of us that fuels us through the holidays and beyond.
Recent economic times have certainly affected all of us. Unemployment, home-value decline and stock market volatility have all played a role in the level of uncertainty spanning the globe these days. With the holidays now upon us, perhaps this uncertainty causes us to draw closer to the ones we love. I have found that in my industry, economic uncertainty evokes a feeling similar to that of the holidays: There is an impulse to draw closer and protect the ones you love. Thus, much of the retirement planning we do epitomizes that same holiday spirit.
Your parents’ plan for retirement income was rather simple. They had the good ol’ company pension plan and social security, with no real need for the intricate planning we employ on how to make their money last as long as they will. Economic uncertainty, which has occurred throughout history, didn’t affect their incomes, because those checks continued to arrive each month regardless of what occurred with interest rates or stock markets. Their pensions and social security demonstrated their love for family by continuing payments, in the event of the breadwinner’s death, to their spouses for as long as they lived. For them, this idea of “retirement planning” was easy.
Today, the company pension plan is extinct, and most of us will reach our retirement with whatever we have accumulated in our 401Ks, IRAs and personal investments. We sit there with our spouses, joyous that we have reached the day when, unencumbered by a daily work schedule, we can dictate what we do each day. There is, however, a catch:
Taking that lump-sum of money you accumulated during your working years and turning it into an income that will last the rest of your life. Most all of us will be without the “default” retirement plan our parents enjoyed, and we begin to realize the meaning of oft-heard phrase: “The greatest thing about a 401K plan is that you get to manage your own money; the worst thing about a 401K plan is that you get to manage your own money!”
We also learn that Uncle Sam, through taxation, “owns” 25% to 50% of every dollar you have accumulated for retirement in these plans! And, with the knowledge that taxes will certainly be higher in retirement — simply as a function of losing your children as dependents and having your home paid off even if the tax rates don’t change — Uncle Sam gets a sizeable slice of your retirement pie. Additionally, we have one other little challenge facing us that our parents generally didn’t: longevity. There is a very real chance that each of us will have a retirement that equals or surpasses the years we spent in the workplace! Factor this with the ups and downs of the stock markets and historically low interest rates, and you may begin to see why planning for income at retirement today is enormously more complex and gut-wrenching than ever before, so go easy on the egg nog.
Fortunately, just as the holidays draw us closer to family, traditions and perhaps a simpler time of life, those approaching retirement can utilize some of the fantastic financial tools available today to essentially “recreate” the pensions their parents had. Some of the methods used to accumulate this pension-duplicating “nest egg” provide you with an income in retirement that is tax-free; meaning, you can keep the government’s hands off your retirement pie. Combine those tools, along with the advice of experts in today’s intricate area of retirement-income planning, and you can enjoy those simpler days so familiar to our parents.
So, as our love of family draws us together once again for the singular joy that is the holiday season, perhaps the greatest gift we can offer each other in these uncertain financial times is the gift of financial peace and certainty that lasts a lifetime, not just one month a year.
The holidays are also a time to give thanks. In that spirit, I would like to express my gratitude to this wonderful magazine, Coastal Style, for giving me the opportunity to speak with you, this community, for welcoming my family to the area where I always dreamed of living, and my firm, PKS, for the vision to serve our clients in the manner we do. For many years before I moved here, I would come to the beach in late-December, armed with a blank legal pad, and look out over the ocean as I wrote my goals, business plans and dreams. Each year the same goal would be at the top of my list: Live at the beach, doing what I love. Five years ago, I realized this dream, and those who know me have most likely heard me say, “I don’t really ‘work.’ I have fun helping my clients have more fun.”
So, if these unsettled financial times have you wishing for the same kind of financial peace that I wish for you, perhaps it’s time we meet. Remember, the holiday season is when wishes can come true.
PKS INVESTMENT ADVISORS
Salisbury office: 410-546-5600
West Ocean City office: 410-213-7185
Lewes office: 302-645-5757
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