Our heart's desires: planning for a comfortable retirement

Significant societal changes have made defining and achieving a comfortable retirement more complex than even just one generation ago: our life expectancy has increased significantly, women are commonly in the workplace even while remaining principally responsible for the raising of children, the high incidence of divorce affects asset accumulation of both men and women, career and job change are common-even frequent-and Social Security and Medicare "safety nets" are threatened.

During our early working years, most of us are occupied by family needs and concerns; only after we've helped launch our children toward their independence and self-fulfillment can we shift the focus of our financial thinking toward securing financial independence for our remaining years. However, navigating toward a financially secure retirement has become something of a moving target: Pensions are uncertain; aging parents may need help; how will our investments perform?

Still, our starting point and desired endpoint must be defined and specified to allow us to plot a successful course. We must regularly review our progress and make navigational changes as needed. Importantly, when our financial goals are aligned with our life goals, we will be more likely to achieve them.

During our prime earning years (ages 30-55), the focus should be on building the assets that will generate the cash flow that we will wish to have. Beyond the prime earning years (ages 55-plus), the portfolio must be managed to generate the desired and needed cash flow. Particular attention must be given to protecting against inflation's threat to your portfolio's purchasing power. With a long-term average annual Consumer Price Index (CPI) rate of almost 4 percent, the dollar's purchasing power is halved about every 18 years. And the cost of medical care (especially needed by seniors) has increased 50 to 100 percent more than the overall CPI!

Assemble your team of trusted advisors, including an accountant/tax-specialist, financial and investment advisor and estate-planning attorney. They will help address complex issues involved in accumulation of assets, their prudent and successful management during retirement years and administration of the estate.

Most individuals want to ensure that their assets will pass to intended beneficiaries, loved ones and favored charities when they die. Regardless of the size of our estate, we should have at least four estate-planning tools in place: a will or revocable trust, a durable power of attorney, a living will and a medical power of attorney. Death of a loved one is often unexpected, and most of us wish to lessen the pain our passing will have on our survivors. Thus, we take the time and enlist the services of professionals to effect transfer of our assets to our intended heirs in an orderly, caring and tax-efficient manner.

A will is a legal document that transfers property upon death, and should be prepared by an attorney. Fulfillment of a will involves probate; this can be a simple process though public, and is appropriate for some. Alternatively, a revocable (living) trust can transfer assets at death: the grantor creates the trust and transfers all or some of his or her assets to the trust. During his or her lifetime, the grantor may move assets in or out of the trust, or otherwise amend its terms. The trust becomes irrevocable upon the grantor's death, and the trustee (named in the trust) distributes the assets to named beneficiaries without having to go through probate.

Generally, a revocable trust is suggested for individuals who wish to keep secret the details about disposition of their assets, or if there may be confusion or difficulty in determining who the heirs are. Additionally, a revocable trust can allow for orderly estate management in the event of the grantor's incapacitation.

Lastly, some assets, such as life insurance proceeds and retirement plan assets are distributed directly to named beneficiaries, and the proper naming of beneficiaries is important.

As of 2006, the federal estate tax exclusion is $2 million for an individual ($4 million for a married couple). The Washington state exclusion is also $2 million for an individual ($4 million for a married couple). An individual's lifetime federal gift tax exemption is $1 million; lifetime gifts exceeding $1 million will be federally taxable. Persons may gift up to $12,000 to any other person gift-tax free, and qualified medical and tuition payments remain gift-tax free.

In summary, planning and achieving our heart's desire regarding our retirement years and the legacy we leave is an ongoing, lifelong process that is most satisfactorily accomplished together with the several professional partners we invite to work with us.

Dr. Yvonne Naum works with clients offering securities and investment advisory services, and is a registered investment advisor. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as investment, tax or legal advice.[[In-content Ad]]