The Golden Years

Edition: July 2007 - Vol 15 Number 07
Article#: 2724
Author: John Sammut and RBC Dain Rauscher

The mantra is often the same when addressing retirement planning: Formulate and fund a plan, maximize employer retirement plan contributions and manage risk. There also lurk other lesser-known obstacles that you won’t see in the standard headlines. And some of these challenges could seriously affect your retirement lifestyle over the long run.

Retirement calculations typically don’t take into consideration the effects of taxes and inflation. The nest egg you’ve built over many years will be steeply discounted when you factor in taxes and inevitable inflationary pressures. Without proper planning and sound advice, your portfolio could lose between 25 and 35 percent to Uncle Sam when you transition out of the workforce.

While taxes may bring your total nest egg down in nominal terms, inflation will slowly and painfully chip away the portfolio’s purchasing power over time — in real terms. For example, even at a modest 3 percent inflation rate, a $1 million lump sum would lose nearly $250,000 in purchasing power after only a 10-year period.

Living well and long

Thanks to advances in medicine, infrastructure and healthcare, people are living longer than ever. Today, a 65 year old in good health can expect to live 20 years or more — a long period of time to fund without the comfort of a regular paycheck. We must now think realistically about the implications of living well into our 80’s — and beyond!

Healthcare costs typically increase exponentially during the “golden years.” Many people fail to consider long-term care needs, should they end up in a nursing home or an assisted living facility. More than half of all Americans will need some form of long-term care, whether in-home or institutional care. This begs the question: Can you afford the potential costs of long-term care? Public monies won’t pick up the tab, and if you impoverish yourself to avoid draining your nest egg, you’ll end up with few alternatives. Long-term care insurance, which can cover the costs of long-term care, is an option — albeit at a fairly steep price.

When planning for your retirement years, it is important to take a long-term view and objectively consider these factors. Whether it means planning for the reality of assisted living or simply preparing for the inevitability of taxes and inflation, a well thought out retirement plan is going to leave you and your loved ones with fewer surprises in the long run.

This article is provided by John Sammut, a financial consultant at RBC Dain Rauscher in Syracuse, N.Y., and was prepared by or in cooperation with RBC Dain Rauscher. The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Dain Rauscher does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Dain Rauscher does not provide tax or legal advice.

John Sammut provides wealth management solutions to individual investors, families and corporations. You can reach Sammut by telephone at (800) 343-3036, or e-mail him at