Expert Retirement Advice from Kiplinger

3 STEPS TO RETIREMENT

1. PLAN. 2. PLAN. 3. PLAN

By Jane Bennett Clark

Less than one-third of middle-class Americans ages 40 to 59 have a written retirement plan, according to a recent study by Wells Fargo.

“People are saving blindly. There’s no sense of how they’re doing or where they are trying to get to,” says Joe Ready, director of Wells Fargo Institutional Retirement and Trust. Some are barely saving at all. One-third of all respondents said they would work until age 80 for lack of means to retire.

Research shows that the very act of calculating what you need for retirement improves your chances of achieving it.

Most retirement planners recommend that you save enough to replace at least 70 percent to 85 percent of your preretirement household income, given that you will no longer be subject to payroll taxes or be saving for retirement. Replacing 100 percent of household income, minus the amount you’re saving for retirement, insures against unknown expenses, such as higher taxes or extraordinary health costs, says Rande Spiegelman, vice president of financial planning at Charles Schwab.

As for the amount of money you’ll need to cover those expenses over a 25- or 30-year retirement, formulas vary. Spiegelman, for instance, recommends saving 25 times the amount of your expected first-year withdrawal (or your combined withdrawal for couples). Fidelity sets the goal at eight times your final salary (for individuals). Both calculations assume you’ll withdraw 4 percent from your accounts in the first year you retire and the same amount adjusted for inflation thereafter.

GETTING THERE LATER

UNTIL 70: ONE WOMAN’S PLAN TO WORK LONGER

By Jane Bennett Clark

Daryl Owens, a New Orleans native, lost her home and all her possessions in 2005 to Hurricane Katrina. Having recovered, she and her husband, Daryl Nichols (the couple connected over their shared, unusual first name), were just beginning to discuss retirement when Nichols died of a heart attack at age 64 in late 2012.

Owens, who had found part-time jobs with an ocular plastic surgeon and at the Fairway Medical Surgical Hospital, in Covington, La., immediately took retirement off the menu.

“I was 64 at the time,” says Owens, now 65. “You don’t need to isolate yourself after your spouse passes away. It was so wonderful to be around people and to be doing what I was trained to do that I knew that I wanted to continue to work past 65.”

Finances mattered. Owens had tapped retirement accounts to meet expenses. And she experienced a big drop in her investments (since recouped) during the recession. She didn’t want to take any more chances.

In significant respects, Owens is in good shape: She started saving for retirement at the start of her career and always contributed the maximum to her 401(k) – $17,500 in 2014, plus $5,500 in catch-up contributions for people 50 and over. She has amassed a seven-figure sum. Plus, she receives survivor benefits from her husband’s employer pension and Social Security.

Owens plans to work until 70, when she will trade her Social Security survivor benefit for the higher benefit based on her own work record. That amount rises 8 percent each year she delays claiming it from age 66 to 70. By working longer, she will take less out of her retirement accounts later.

Owens believes she made the right decision. “Working is a social and a heal- ing process for me, and I also have the benefit of getting paid for it.”

GETTING THERE SOONER

OUT AT 59: ONE MAN’S PLAN TO ENJOY IT

By Jane Bennett Clark

Bob Parisi was determined to retire while he was healthy enough to enjoy it. “My mom died at 63 because she was a diabetic, and diabetes runs in the family,” says Parisi.

Now 61, he retired at 59 as a data-processing executive for IBM in July 2012. He and his wife, Janice, 56, moved from New Jersey to a Phoenix suburb. Their oldest child, Brian, had recently graduated from Arizona State University; their two other children are attending ASU.

How did the Parisis manage to retire early and send three kids to college?

Through Parisi’s working life, he maxed out on his employers’ 401(k) plans and worked for large companies that matched contributions up to 6 percent of his salary. During 17 years at IBM, he invested 10 percent of his salary in company stock, which did well. To diversify, Parisi invested in four New Jersey condominiums. He has sold three and plans to sell the fourth this year. And he left IBM with a $220,000 lump sum in lieu of a pension. Parisi’s seven-figure retirement savings account is worth about ten times his final salary.

Still, Parisi created a spreadsheet to track his family’s expenses. He dropped the cost of his 80-mile round-trip commute but assumed most expenses would remain the same. He included tuition for the two children still at ASU.

Parisi had to budget for health care. He can purchase group health, vision and dental coverage from IBM for $18,500 a year for four at home. Parisi is using money from a health-care account established while was at IBM to cover half the premiums; he’ll pay the rest out of pocket until he’s eligible for Medicare at 65.

Parisi planned to retire debt-free, but he and his wife took out a mortgage on their new home; their financial planner, Jim Parks, of Ridgewood, N.J., recommended they take advantage of low interest rates and the tax deduction for mortgage interest. Even with a mortgage, Parks believes the Parisis’ savings can last into their nineties, based on an annual inflation-adjusted withdrawal rate of 4 percent a year, plus Social Security.