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Retirement: Short on Money, Long on Time?, Part 2


Planning for the future.

Editor's Note: Leonard A. Spivak retired as partner of Cahill Gordon and Reindel LLP in 2007. Len is married to Nicole Sebag-Spivak and has 4 children and 4 grandchildren. Len serves as legal consultant to Minyanville; this is his first article for the site. Please see Part 1 here.

Although saving for retirement should start at the beginning of your career by putting as much as you can afford into 401Ks, IRAs and similar programs, serious planning should begin no later than age 50. For many, steps can be taken to reduce the risk that retirement funds will prove insufficient - steps that a prospective financial advisor may not tell you about.

1. If you have children who may be completing college as you approach retirement, or even after retirement (many children go for graduate degrees after 4 years of college), Section 529 plans can be a godsend. These plans permit the contribution of up to $10,000 per year (in New York) for children's education, with that $10,000 deducted from state tax in the year of contribution. (You can contribute more, but the state tax deduction is limited to $10,000 per calendar year.)

These funds are invested by a Plan Advisor, selected by the state, in portfolios that become increasingly conservative to more readily assure availability when the child reaches college age. State taxes are repaid when the funds are drawn upon. Forcing yourself to contribute to these plans (or making a one-time contribution early in the child's life based on assumptions of longer term market performance - obviously a gamble) will prevent your being saddled with large educational expenses just when you'd like to cut back on all large expenses. At age 65, I still have a child in college - but thanks to the 529 Plan, there's no adverse financial impact.

2. Not only should you invest as much as you can in your 401K -- including the use of "catch-up" contributions -- you should also strive to make post-tax investments outside these plans; as you approach the point of retirement, these should be secure and relatively liquid.

There are several reasons for this, aside from "more is better." First, these funds should be treated by you as a "ready reserve" contingency fund, not as part of your retirement portfolio.
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