Career Resources

Successful Retirement Planning

Successful retirement planning requires three key elements: setting clear goals, maximizing tax benefits, and exercising discipline.

Ronald J. Paprocki, J.D., CFP

Poor planning is the most common reason executives fail to enjoy a financially successful retirement. As the saying goes-people don't plan to fail; they fail to plan. Although we may feel there's never a good time to begin to plan, we must begin today.

Three Key Elements

Successful retirement planning requires three key elements: setting clear goals, maximizing tax benefits, and exercising discipline.

Setting Clear Goals

First ask yourself such basic questions as: When do I plan to retire? Will I most likely completely retire, or will I continue to do something to generate income? What overall income objective do I have for my retirement? Answers to these and similar questions should provide you with the foundation on which to build your retirement plan.

Next, take stock of your retirement assets. For example, what types of retirement plans are provided by your employer? What should you expect from such plans? Should you count on Social Security? (It makes sense to obtain a verification from Social Security regarding your anticipated benefits.) What rate of inflation is realistic? Being aware of the sources of retirement income available to you will aid in projecting or analyzing your retirement standard of living

Finally, study investment planning strategies. Recognize that there are different types of assets classes. Examples include cash, debt, equity, or real estate. Achieving a balance among these asset classes will give you the investment planning strategy to reach your goals.

Most people spend all their time deciding which investment product to purchase or when it's the right time to invest. Deciding which asset class you want to invest in is more important than choosing an individual investment vehicle or deciding when to make the investment.

Maximizing Tax Benefits

The second element of successful retirement planning is to maximize available tax benefits. For example, contributions to a 401(k) plan or 403(b) annuity can be made with pre-tax dollars. Interest also accumulates on a tax-deffered basis. Thes types of tax benefits can dramatically increase the total rate of return that is available after time. An easy way to think of tax benefits is to realize that there are three distinct phases of an investment: the deposit or purchase phase, the accumulation or growth phase, and the liquidation or income-producing phase.

The government allows, at best, a tax benefit to be available in two of the three periods. For example, a 401(k) plan allows you to receive a tax benefit when the deposit is made and as the assets accumulate. But, any withdrawals made from a 401(k) plan are taxable as income. Consider these different time periods and do as much as possible to receive the tax benefits to which you entitled.

Exercising Discipline

All the retirement and tax planning strategies in the world will provide you with no benefits if you don't actually implement your plans. It's important to understand tht you not only need to gather information to make informed decisions, but you also need to act on those decisions. The earlier you begin, the greater the chance you will enjoy a financially successful retirement. The key is not just to plan but to act.

Ronald J. Paprocki, J.D., CFP, is a corporate vice president of AMA Investment Advisers, Inc., a wholly owned subsidiary of the American Medical Association.

This article is reprinted from Healthcare Executive.