Q. One thing that is rarely addressed is the amount of money that an individual or couple will actually need to save before they can afford to retire. I know it depends on the lifestyle the individual or couple wants to maintain, but there must be some way to put some sort of dollar figures together and publish them. That might be more helpful to some of us than the same old `save more’ routine.
–William Murphy, Downers Grove
A. You’re right: It does depend on how much you want to spend. That said, there are quite a few new tools available free on the Internet that can get you in the ballpark. For a rough estimate, many financial planners recommend keeping your first year’s withdrawal in retirement to 4 percent of your portfolio. From that figure, you can adjust for inflation each year and not run out of assets. Four percent of a $700,000 estate is $28,000 in the first year.
Want something with a little more detail? Several Web sites offer online retirement calculators that let you input factors such as current income, amount saved and investment assumptions. Consider www.troweprice.com, www.vanguard.com and www.bankrate.com. All three use slightly different calculations, so it’s worth the time to check the different estimates.
An example: A couple 10 years from retirement making $50,000 a year who have already saved $400,000 will need a lump sum of $851,186 at retirement to replace 70 percent of pre-retirement income and cover expenses for 25 years, the T. Rowe calculator figures. They’ll make it if they get an 8 percent annual return on their investment and save $2,296 a year in tax-deferred accounts until retirement, according to the company.
Q. My question has to do with income and compensation for people (like me) already receiving Social Security. Will any additional income I receive from part-time or full-time employment be subject to Social Security deductions? And, if so, will those deductions result in higher monthly payouts from SSA?
–John Gorman, Sarasota, Fla.
A. If you retired before your full retirement age, the answers are yes and maybe. Payroll taxes continue on any income you earn, and your income can reduce the amount of benefits you receive. For every $2 you earn above $12,480 this year, the government deducts $1 from Social Security benefits.
Now for some good news: “If your earnings for the year are higher than the earnings that were used in the original benefit computation, Social Security substitutes the new year of earnings,” said Social Security Administration spokesman Mark Lassiter. So if you worked in 2005 for more than what was calculated in your original benefits formula, the formula will automatically adjust and you’ll see a benefit increase by October, Lassiter said, retroactive to the beginning of 2006.
If you’re beyond full retirement age (65 years, 8 months for those born in 1941), you keep all benefits, whether or not you earn additional income.
“It’s probably not a good idea to take benefits prior to full retirement age, unless you are truly retiring,” said John Gay, a financial planner in Frisco, Texas.
And don’t forget income taxes. Up to half of your benefits will be taxed if income exceeds $25,000 ($32,000 for couples), and up to 85 percent is taxed if total income plus half of Social Security benefits exceeds $34,000 ($44,000 for couples), according to Bankrate.com.
Be sure to calculate the extra tax from additional work, but also the emotional factors–such as career satisfaction or desire to quit altogether, Gay said.
For all the details, call the SSA at 1-800-772-1213 and ask for the publication “How Work Affects Your Benefits,” No. 05-10069, or go to www.socialsecurity.gov.
Q. I’m one of many who started a business that has gotten “too big” and would like some retired executives to tell me what road to take. How do you find them?
–Carole Potts, McHenry
A. A previous column discussed Score, an organization originally known as the Service Corps of Retired Executives. The group has a Web site and local chapters that help entrepreneurs start and grow companies. Volunteer counselors often are retired entrepreneurs or business executives who have agreed to offer free help to up-and-comers.
In your area, call the Fox Valley Score office at 630-692-1162, or the Chicago chapter at 312-353-7724. The Web site is www.score.org; it allows users to look up the nearest chapter.
You also could try www.micromentor.org, an online service that matches entrepreneurs with volunteer mentors. Typically, this service helps businesses that were started for less than $35,000 and employ fewer than five workers. Mentors are required to have owned a business at least three years, or to have worked as a business professional at least five years. Director David Rand said the database now includes about 1,000 mentors and the service has counseled about 1,200 entrepreneurs.
More Top Picks Best Colored Overlays For Dyslexia
———-
Have a retirement question? Write to [email protected], or via mail at Your Money, baiduhai, Room 400, 435 N. Michigan Ave., Chicago, IL 60611. If your letter is selected, we may include you and your question in a future column.