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Phone: 201-345-3018

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Don't forget unexpected expenses when planning for retirement

New Jersey residents hoping to enjoy their golden years later in life will have to dig deep into their pockets before retiring. The cost of everything continues to increase, so Boston College's Center for Retirement Research advises working adults saving for retirement to use a required minimum distribution calculated by the Internal Revenue Service. This differs from the "4 percent rule" advocated by many financial planners to determine how much personal savings can safely be spent after retirement.

Under the 4 percent rule, new retirees can spend 4 percent of their savings in the first year and then increase that amount each year according to the inflation rate. Under RMD, the IRS requires that investors withdraw a portion of their tax-favored assets each year after they turn 70 ½. This triggers income tax on any money that was not previously taxed, with the goal of paying any taxes owed on IRA withdrawals and 401k plans during the investor's expected lifetime. In the asset protection planning phase, RMD takes into account annual changes on investment returns.

Working adults calculating their estate planning equation also need to factor in additional possibilities that could erode savings. Taking into account unexpected medical and health care costs as well as nursing home and assisted living expenses is a wise idea. Assisted living facilities can cost thousands of dollars each month, and trying to pay for that as well as medical bills can wipe out a family's finances.

A survey done by the New Jersey Business & Industry Association revealed that health insurance premiums are increasing at three to four times the state's inflation rate. The trend towards seniors living well into their 80s and 90s highlights the importance of careful wealth preservation planning. Estate planning attorneys may be able to advise families of their options on a case-by-case basis.

Source: MainStreet.com, "How Much Can You Really Spend Each Year of Retirement", Jeff Brown, July 30, 2013

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