THE AGING OF AMERICA

Georgia State Scholars on Retirement,
Estate and Tax Planning

BY MIRANDA HITTI

In the whirlwind of starting a career, we may imagine retirement with longing. It will be an endless vacation, we think.

We'll do as we please, travel, dote on our grandkids, and toss the alarm clock in the trash. Maybe we'll even do something daring, like sailing around the world or moving to Paris to take up painting. Who knows? It's a long way off, far removed from our current reality of deadlines, meetings and bumper-to-bumper combat, otherwise known as traffic.

But the blissful ignorance of youth can translate into golden years that are decidedly lackluster. Without careful planning and saving now, we'll be hard pressed just to maintain our current standard of living after retirement, let alone take off on fanciful adventures.

That is the finding of Bruce A. Palmer, chairman of Georgia State University's Department of Risk Management and Insurance. Palmer serves as principal investigator of the Retiree Income Replacement Project (RETIRE), established in 1988. RETIRE, Palmer explains, calculates the percentage of an employee's final-year salary needed to maintain his or her standard of living into retirement. "The replacement ratio generally falls in the range of 70-80 percent for salaries up to $100,000," says Palmer.

Palmer notes that RETIRE findings show higher replacement ratios than experts expected. He also points out that the RETIRE numbers are based on "averages for large groups of people" and also consider factors like average changes in health care expenditures after retirement.

The lesson Palmer suggests should be taken from the RETIRE research is simple: save more money. "People need to increase savings in order to achieve their retirement income objectives," says Palmer.

Palmer also advises that the 70-80 percent figure is an estimate. "Use it as a guideline. Frankly, people ought to do their own type of retirement income analysis to calculate what they would need," says Palmer. In other words, tailor your own plan to your individual circumstance.

Palmer's words are echoed by Fred Tillman, faculty director of Georgia State University's master's degree program in personal financial planning. "The earlier you start [saving], the better off you're going to be," says Tillman.

But let's put all the cards on the table. If you're feeling a little guilty for not getting your retirement savings act together, you're certainly in good company. When asked if he started saving for his own retirement early on, Tillman replies, "Oh, no. I got smart around 43 years old," adding, "That's younger than most."

Tillman says his wake-up call came in the form of his childrens' education bills. "I was fairly well broke. One year I spent $25,000 for school and that hurt!" Tillman started exploring the field of financial planning, his current specialty. In 1978, he became a Certified Financial Planner and has served on several national boards, in addition to starting Georgia State's financial planning master's degree program.

Having wised up personally and passed his knowledge on to many students and clients, Tillman offers this advice: get sneaky. When he first began saving, Tillman says, "I started hiding $500 a month from myself. It sounds so simple and almost so obvious, but if you never see it, you never know you had it," says Tillman. For example, the next time you have a pay raise, automatically dedicate a portion of it to retirement savings. If it goes straight into savings without crossing your palm first, you won't spend it. "If you start putting money aside at an early age, it's a slam dunk," Tillman declares.

If you're not a kid anymore, what are your options now? "Put more money in and make more sacrifices now. Secondly, change your goals. Instead of retiring to a French manor, perhaps it will be the North Georgia mountains instead. The third thing is to invest in things with more risk and hopefully a larger return," says Tillman.

If you decide to consult a financial planner, Tillman recommends checking references and looking for professional qualifications such as a Certified Financial Planner designation. "Make sure you're compatible with the planner and check the performance" of his or her recommendations, urges Tillman. If your plan is falling short, start making changes.

However, the greatest financial planner won't do you much good if you don't know what your goals are. "The most important thing is setting a goal early in life. What are my ambitions and my goals? Try to be as specific as you can. Then work backwards and see what you have to do to get there. You're going to be wrong with your calculation; your times and goals will change; but the important thing is to establish a goal and go after it," in Tillman's view.

Part of thinking about your future includes estate and tax planning. How do you want your estate distributed? Do you want to give a portion of it to charity, and if so, how much and to which causes? "I try to ask people to be comprehensive and integrated in their planning. Not being piecemeal is important. Proper planning can avoid estate taxes on up to $2.5 million estates," says Tillman. Some people may be squeamish at the thought of drafting their wills and thinking about what happens when they're gone. "People are very reluctant to plan relative to their own mortalities. The greatest impetus is [often] the first heart attack. Something's got to motivate people," says Tillman. "But if you die without a will, you forfeit any say in how your estate is distributed. Once you make your will, it's a good idea to review it every three years or whenever you have a major life change, such as a marriage, birth or other shift in circumstances." One last recommendation: don't get lost in the numbers. "One of the things I try to impress upon people is that we're not making money for money's sake. It's for what we want to do with it. The [aim] of financial planning is to truly satisfy as many of our psychological goals as we can through financial means," Tillman concludes. Gauge your motives, then grow your money.

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