by Bridget Hess

With only a handful of Kansas City companies still offering pension plans, the majority of local executives will be expected to finance their own retirements. The million-dollar question everyone should ask themselves is: how much money will I need in order to retire when I want and with the lifestyle I want? Financial advisers can’t stress enough that it is never too early to start saving for retirement, yet many are not taking this tried and true advice as seriously as they should.

“Too often I don’t meet with a client until he is two months from retirement, and I am the first adviser he talks to. There ought to be a national marketing campaign encouraging people, as soon as they turn 50, to ask the question ‘how much [money] do I need to retire’ and then find a trusted adviser who can help them answer this question,” said Chris Costello, CEO of The Retirement Planning Group.


Charting a Course

What is the best way to approach the cumbersome task of planning for retirement? A good financial adviser will take clients through an exhaustive process of determining what they want their retirement lifestyle to be, understanding each aspect of their finances, and talking with them at length about their investing experiences and risk tolerance.

For many individuals, their company 401(k) will be a big chunk of their retirement assets. Yet not everyone takes advantage of this to the extent that they should. Even for those who have other assets they plan to rely on during their retirement years, the matching offered by their companies and the pre-tax advantage of a 401(k) make it an investment no one should pass up.

“I regularly talk with clients whose level of 401(k) funding is not nearly what it should be—they might make $300,000 a year but are only putting $8,000 into their 401(k),” said Costello.

For those of us who desire a certain lifestyle during retirement, a company-sponsored retirement plan and social security benefits will be just pieces of a larger retirement plan puzzle. This is where a strategic investment account and the advice of a good financial adviser come in. An overall plan should take into account that retirement might last as long as 30 years, and it should consider inflation rates during that time as well as increasing health insurance and health care costs.


Investment Choices

With so many choices out there, does it really matter what you’re invested in or is it simply important to have a good mix? One financial adviser may have a completely different opinion on this matter compared to the next one. Yet the key here is to seek the advice of at least one unbiased professional—if not two or three of them, and to make sure your investments are meeting your individual needs.

“My job is to know my clients, bring them investment ideas and advise them on their choices. No two accounts are ever the same, and what’s right for your neighbor might not be right for you,” said Kelly Goodburn, an investment adviser with Bankers & Investors Company, an affiliate of Valley View Financial Group.

The Retirement Planning Group combines careful asset allocation based on the customized plan they construct for clients, while taking into account personal risk tolerance. They use these in conjunction to obtain the return on investment their clients need.

“Once we have this figured out, we move on to the investments. We like index funds, in particular, due to their low cost and tax efficiency,” said Costello.

William Lowe, a senior vice president and senior wealth adviser with UMB Asset Management, recommends clients create tax efficiency when possible by applying their overall asset allocation strategy across all, rather than within each, investment account.

“It might make sense to invest stocks, which are capital gain producing assets [they typically garner high-er returns], outside of retirement accounts since the income will only be taxed at the favorable 15 percent capital gains tax rate. Then you may consider regular income producing investments within an IRA since the distributions will be taxed at the higher ordinary income rates of up to 35 percent,” said Lowe. “Yet, taxes are only one factor in the investment planning process. Implementing an investment strategy that encompasses all of a client’s investments is the main goal.”


Tax Diversification

In addition to diversification within an investment account, tax diversification among the various pieces of a retirement plan puzzle can be key too. In other words, it is helpful to have assets that are taxed differently, including assets that will be tax-free when you draw income from them.

The Roth IRA has been, though a great tool for those who can use it, unavailable to individuals earning more than $100,000 annually. Yet, unbiased Roth benefits will soon be available for everyone. In the year 2010, anyone can enjoy the tax-free cash benefits of a Roth IRA, as Congress has passed a law allowing conversions of Traditional IRAs to Roth IRAs starting in that year. This new law applies to conversions only, not to regular contributions to a Roth IRA. So, if you make more than $110,000 as an individual or $160,000 as a couple, you’ll simply need to convert a Traditional IRA to a Roth in 2010.

Another great tool is the new Roth 401(k), which has no income restrictions. Like the Roth IRA it requires that taxes be paid upfront, thus allowing future deductions to be tax-free for individuals or their heirs to pull the cash out down the road.


The Debt Question

Unlike their grandparents, about half of baby boomers will still have mortgages and car loans entering their retirement years. Whether or not to pay off all debt before retiring is an individual decision—and a mathematical one. As the general rule of thumb goes, always pay off your debt first if you are paying more in interest than your investments could be earning. Yet in the case of a low mortgage rate, some financial advisers may advise their clients to continue paying a mortgage so that their money can earn more elsewhere. However, for many, retiring debt-free is simply a peace of mind issue.

“For a lot of people, they can sleep easier at night if they know they are debt-free,” said Costello.

Whether it’s travel and golf or sleeping late and new hobbies you look forward to, your golden years will not let you down if you have carefully planned. The key to careful planning is to find a financial adviser you trust, and work with him or her well in advance of your retirement years. A good financial adviser should spend time understanding your objectives, help coordinate every aspect of your financial life, and work closely with you to develop a solid plan to reach your retirement goals.


Minimizing Income Tax

Succession Planning

Retirement Planning

Estate Planning

Managing Investments

Loss Prevention