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VOL. 110 | NO. 19 | Monday, January 29, 1996

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01/29 Inv analys To retire early, plan early By MIKE STEIN Special to The Daily News It seems that early retirement is becoming the rule rather than the exception these days. Not only are many people choosing to retire before the traditional age of 65, but companies are seeking to reduce costs by offering employees attractive severance packages before they reach 65. Regardless of the reasons, early retirement places a premium on sound advance financial planning. Among the many financial realities you must anticipate are: Without a full-time job, your current income likely will drop sharply. Your companys pension and/or profit-sharing plan probably will pay you less on a monthly basis if you retire early. If you have an Individual Retirement Account, withdrawals taken before age 59.5 are taxed as ordinary income and may be subject to a 10 percent penalty, unless they are paid out in substantially equal payments (based on your life expectancy) for at least five years or until you reach age 59.5. The earlier you retire, the longer the period of your retirement you will need to finance, especially in light of the fact that we are living longer and healthier lives. If you accept an early retirement or severance package, you may receive a large lump sum that will need to be invested carefully over a long term. The complexity of these and related retirement issues suggest that you start your planning process well in advance of your projected retirement date. As you will see, a candid look at your finances may suggest you rethink your retirement plans. The key to retirement planning, as with any investing, is to set realistic objectives. Lifestyle questions, such as where and how you plan to live, are critical, as is your health and that of your spouse. Any long-term illness or special medical needs could place severe limitations on your retirement plans. Next, make a thorough analysis of your present financial situation. Start with a review of your assets, which include your home, bank account balances, investments, pension/profit-sharing benefits and personal property anything that could be converted to cash. Go through the same process with your liabilities, which include any amounts that you owe (mortgages, car loans, credit card balances, etc.) Deduct the liabilities from your assets to calculate your "nest egg" the funds you can use to finance your retirement. Heres where the planning process gets tricky. You must match the income and growth potential of your assets against your retirement objectives to see if you prudently will be able to afford your desired lifestyle. If not, you may need to make some trade-offs in your retirement choices or consider postponing your retirement for a few more years. If you have ample assets, the next major issue is how you will invest them for retirement. Conventional wisdom has been to invest for income and minimize risk of principal in such fixed-income investments as municipal or investment grade bonds, treasury bills and certificates of deposit. However, this strategy ignores the effects of inflation. Even todays moderate inflation rate can have a devastating effect on the purchasing power of your investment income in 10 or 20 years. There is no single investment strategy that is right for early retirement. An ideal portfolio will incorporate current income, growth of principal and tax advantaged investments to help ensure that you do not outlive your assets a real concern with early retirement. This is a simplified look at early retirement planning. In reality, few individuals are in a position to accurately assess such variables as retirement costs, tax consequences, health costs and insurance, the impact of inflation and maximized yield from assets. Therefore, it is always prudent to consult a qualified financial advisor early in the planning process. A professional not only can help you find solutions, but can also help you ask the right questions to help you enjoy the rest of your life. Stein is first vice president for investments for Prudential Securities Inc.
RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047
FORECLOSURE NOTICES 0 19 170
BUILDING PERMITS 0 305 3,056
BANKRUPTCIES 20 118 736
BUSINESS LICENSES 27 53 329
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0