Planning for Retirement? Here's What to Look for

By NANCY RIVERA BROOKS

May 20, 1996 12 AM PT

TIMES STAFF WRITER

Once upon a time, there was a generation that wisely prepared for a financial future that would include a comfortable retirement stretching for two or three decades, if not longer.

This, of course, is a fairy tale, especially for most people born between 1946 and 1964.

Baby boomers--and there are 75 million of them--are in a state of denial when it comes to retirement planning, financial experts warn. Boomers, the oldest of whom are just reaching their 50th birthdays, are saving about a third of what they need for a retirement lifestyle that approaches their current one.

What’s a nice generation like that doing in a fix like this?

It seems that the rules changed. The stalwarts that kept Gramps in fishhooks and golf balls were Social Security and the company pension. Both of those appear to be going the way of the gold watch.

Hardly anyone expects Social Security and Medicare to have enough money in the next century to fund the bulk of the retirement and health-care needs of the huge boom generation.

And corporations have switched in overwhelming numbers from defined benefit plans, which pay a monthly sum upon retirement, to defined contribution plans, which put the burden on workers to set aside a portion of their salaries each paycheck and to direct how those funds should be invested. Defined contribution plans, the most common of which are 401(k) plans (no one ever accused the Internal Revenue Service of having a way with words), now cover more workers over 40 than are covered by traditional pension plans.

But just as fairy tale characters strive for a happy ending, so baby boomers should not give up their retirement dreams. Here are some of the things financial experts recommend:

* Stop wasting time. The best day to begin preparing for retirement is the day you start your first job. The second-best day to begin preparing for retirement is today. The earlier you start, the more time interest compounding has to work its magic.

* Get help. Consider consulting a professional financial planner. Getting ready for a far-off future involves several assumptions about inflation and expenses as well as information on the performance histories of various investments. A novice might have trouble coming up with the right numbers. But for determined do-it-yourselfers, books and software about retirement planning are proliferating. Some are free.

* Try to figure out what your assets will be when you retire.

“The first thing you need to do is get a handle on the facts,” said Gregg Ritchie, a partner in the personal financial planning group at KPMG Peat Marwick in Los Angeles. “The hard part is you can’t always quantify your [future] assets today.”

If you have money in a 401(k), it can be tricky figuring out what it will be worth years from now. A traditional corporate pension can be even tougher to assess, Ritchie warned, because many employers don’t want to spend time figuring out your pension benefits until you are at retirement’s door.

Attempt to estimate what your salary will be in your waning years of work. This, too, is difficult, given the employment world these days. Today’s vice president might be tomorrow’s downsizing victim.

* Try to figure out what you will be spending when you retire.

Retirement expert Kathy Brogan went to a party not long ago that became pin-drop quiet when she revealed her occupation. “Then some guy shouted from the kitchen, ‘Am I really gonna need a million dollars to retire?’ ” recalled Brogan, vice president and manager of retirement products for Nicholas-Applegate Capital Management, a San Diego investment firm that specializes in tending retirement assets for institutional clients with a heavy emphasis on growth stocks. Her answer: probably.

These big numbers aren’t just scare tactics used to sell products, financial planners insist.

“People assume their expenses will change drastically,” Ritchie said. “They think they’ll drop 50%. That’s ludicrous.” Some expenses will decline, but others will increase, making 75% to 85% of your pre-retirement income a more realistic estimate, he said.

* Do the math. Try to remain calm.

The folks at Nicholas-Applegate say that to maintain a $75,000-a-year lifestyle for 20 years of retirement, you will need to have saved $736,361 on the day you stop working. That total is not adjusted for inflation and assumes your savings will continue to grow at an 8% rate while you make withdrawals. A $50,000-a-year lifestyle will require $490,907, and a $100,000-a-year retirement will demand $981,815 in savings.

But prognosticators are predicting that all those aerobics classes will pay off in longer lives for baby boomers. So to maintain that $100,000-a-year lifestyle for 30 years, you’d need savings of $1.25 million.

* Become more aggressive in your saving and investing.

Trying to squirrel away that kind of cash is nearly impossible for most people, and baby boomers in particular have proved much better at living for today than at saving for tomorrow. That means taking more risks with what you have saved, planners say.

“Where most people fall down these days is in investing too conservatively,” Ritchie said. “If people don’t invest in the equity market in a significant way, they’re just going to outpace inflation; and if they can’t outpace inflation, they’re never going to retire.” Returns from stock market investments over the long haul, which is what retirement plans represent, can’t be matched by other types of investments, he said.

But even within growth stocks, there are different levels of risk, Brogan pointed out.

“You need to realize what kind of investor you are,” she said. “Would you prefer to sleep well or eat well? I need to sleep well.”

Take full advantage of tax-deferred investment vehicles such as individual retirement accounts, 401(k) plans and annuities.

* Keep on top of your investments.

“People forget to check up on their investments. You can’t do it and walk away,” Brogan said. Take the temperature of your funds at least once a year--and once a quarter would be better, she said.

* Avoid costly vacations. You can take vacations, but don’t allow your money that luxury. When changing employers or losing a job, resist the urge to use retirement funds to take care of current expenses, as difficult to do as that may seem.

“Typically, if you get downsized, you’re going to walk out with something,” Brogan said. “I can’t stress enough: Don’t take a check. Roll it over into an IRA, for example, and keep it going.”

* Don’t count out Social Security and traditional pensions. There’s life in those old plans yet. Check with Social Security periodically to make sure your contributions are being properly recorded. This is particularly important if you change jobs.

You can call the Social Security Administration at (800) 772-1213 and ask for form SSA-7004, Request for Earnings and Benefits Estimate Statement. Fill it out and send it back, and the Social Security Administration will send back a listing of your Social Security-qualified employment earnings and expected retirement benefits.

If all this is too depressing, then stop reading now. Because Ritchie has a prediction that might be even more disheartening for a generation addicted to Lifecycles and Rogaine:

“The next hot topic,” he said, “will be estate planning.”

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Free Retirement Planning Help

Yes, it’s true: You can find free help as you try to figure out what you must save and where you should invest for a comfortable retirement. Some of it concerns how to find the right financial planner, who won’t offer services for free. The rest are workbooks, brochures and software to guide you through the retirement-planning maze. These companies offer the advice as a sort of “loss leader,” on the theory that you might eventually wander back to them to buy products.

Who: Institute of Certified Financial Planners

What: ICFP offers a brochure titled “How to Select a Financial Planner” as well as referrals to certified financial planners by ZIP Code.

How: 1 (800) 282-7526

Who: Better Business Bureau

What: A brochure titled “Tips on Financial Planners, No. 07-24-225”

How: Available free from the Better Business Bureau of the Southland by sending a self-addressed, business-size envelope to P.O. Box 970, Colton, CA 92324. The brochure is also available from the Council of Better Business Bureaus in Arlington, Va., by sending a $2 check and a self-addressed, business-size envelope to Council of Better Business Bureaus, Department 023, Washington, D.C. 20042-0023. Specify the brochure number. (Some tips on selecting a financial planner are also available on the BBB home page at https://www.bbb.org).

Who: Dreyfus Corp.

What: Personal Retirement Planner

How: 1 (800) 782-6620

Who: Fidelity Investments

What: Retirement Planner

How: 1 (800) 526-7251

Who: John Hancock Financial Planning

What: A free copy of “Ready, Set, Retire!” a book by J. William Brimacombe, which normally retails for $12.95

How: 1 (800) 828-7081, Ext. 221

Who: Kemper Mutual Funds

What: Retirement Planner

How: 1 (800) 537-5555, Ext. 300