Financial planning for retirement should begin as early as
possible to take advantage of the "magic of compounding," according
to June Klaassen, an Oklahoma City financial planner.
An exhibit accompanying an article she wrote for the April
issue of Real Estate Today showed that the annual contribution
amount and number of years for contributions were substantially
lower the earlier contributions began.
A person beginning at the age of 35 would have to put $5,550 a
year through age 65 into an account earning 10 percent interest to
have a retirement fund of $1 million. If that same person had
started at age 27, he would have to contribute only $2,500 annually
to build about the same fund. However, if that person started at
age 18, he would only have to contribute $2,000 a year for eight
years, until the age of 26, to build the fund.
Klaassen is a chartered financial consultant, an account
manager with the Oklahoma Financial Center Inc., 6307 Waterford
Blvd., an investment advisory associate with Calvert Securities
Corp. and a Realtor. Real Estate Today is the publication for the
National Association of Realtors.
Planning is the only way to design the best strategy to meet
the retirement needs of the person while taking advantage of
compounding and tax benefits. Klaassen said many people get close
to their retirement age and realize they should have begun planning
for it years earlier.
A retirement planning session gives the business person the
opportunity to review the entire financial house _ including how it
will be divided once the owner is gone. Some retirement plans even
double as estate plans, and others become part of a financial
package which has instructions for every type of contingency.
Claudine Long, a certified financial planner with her own firm,
said the first thing a person needs to do is determine what his
income requirements at retirement will be.
"Where you are going to retire has a lot to do with how hard
your money has to work for you," she said.
"You need to know what you are spending your money on. Will you
maintain your lifestyle as is or will there be adjustments? You
need to factor in the effects of inflation and taxes. You need to
know what it takes to live and what sort of a return you will need
to fund that."
She advises her clients to take advantage of any tax-deferred
retirement savings plan available through their companies and to
fund Individual Retirement Accounts to supplement Social Security.
Funds can be invested in many ways, including stocks, bonds,
mutual funds or annuities. The vehicle chosen should reflect the
comfort level of the investor _ i.e. whether he wants to make all
the decisions or whether he would prefer to let someone else decide.
Long said a person in a 28 percent tax bracket will need to
make at least 6.9 percent interest just to cover taxes and 5
She said she sees more people choosing fixed-income vehicles
and corporate bonds or preferred stock due to uncertainty in
One of the most popular legal mechanisms into which retirement
funds can be placed is a trust. Trusts historically were used by
those with large estates who wanted to avoid probate _ which is a
process the state uses to pass title from one person to another _
and escape some taxes, said attorney Guy Jackson. …