Planning for retirement - electronic financial planning - After Hours - Internet/Web/Online Service Information - Column

Home Office Computing, July, 1996 by David Hallerman

If You Don't Take Care Of You, Who Will?

Here's How to Build Your Nest Egg Electronically

When I wonder if I'll have enough retire on, I get nervous. Those are the the bad days, that same wonder fear. You've undoubtedly heard the same news I have: By the year 2013, Social more than it takes in, 2013 is less than a fistful of I realize that I should from that agency not that it would anyway. So what can I do this bad news? As a I left the corporate life for new is that I have a choice among retirement vehicles. Any one some sock away more each year than I could in my former life as an employee, while reducing my taxes at the same time.

Starting Off In figuring out how to best save for retirement, I begin with my IRA. I set it up by rolling over the 401 (k) funds I accumulated while employed. I chose discount broker Charles Schwab for three reasons: one, a wide range of no-fee mutual funds; two, reasonable fees on trading other funds or securities; and three, Street Smart software that lets me go online any time I wish to make trades, get price quotes, and check on the status of my account. Another broker that offers similar benefits is Fidelity. But in setting up my self-employed retirement account, I must be careful not to mix up funds in my existing IRA with any new plans. If I did, tax problems could arise later on.

In addition to my rollover IRA, I also have a pension plan, one I think of as the classic variety. This is a defined benefit plan that I became vested in with my former employer. I call it classic because this is the type of pension that will give me a certain sum each month once I reach a certain age. However, since I left my job, that sum is a pittance--only a few hundred dollars per month. So if I want to avoid the joys of eating canned dog food in my later years, I better get cracking on building a separate retirement plan.

Among the various types of retirement plans for the self-employed, the two most common are the Keogh and the SEP-IRA (Simplified Employee Pension-Individual Retirement Account). One key difference between the two is that a Keogh must be set up by the end of the fiscal tax year (typically December 31), whereas a SEP-IRA offers more leeway, giving me until the date my federal tax return is due (typically April 15) to inaugurate the plan. Other reasons I'd choose a SEP-IRA over a Keogh include the ease of starting and maintaining one. Setup consists of filling out a simple, one-page form that gets filed with a broker, bank, or mutual fund, while annual paperwork is merely a single line on my 1040. Finally, a SEP-IRA offers me more flexibility than certain types of Keogh plans. With a SEP-IRA, I can contribute anywhere from a maximum of 15 percent of my annual self-employed compensation down to nothing if funds are tight. Since $150,000 is the maximum income on which retirement contributions can be based (for the 1995 tax year), that allows me to salt away up to $22,500 each year.

Surf and Save How much should I contribute to my SEP-IRA? And how should I invest the money I put in? This is where electronic help--both online and software--can make a big difference. I began my search by going on the World Wide Web. Those of you who have spent time on the Web know that in many ways, it is similar to a vast research library. Once you get the hang of the best search engines to use--Web sites such as Yahoo!, Alta Vista, and Excite--it's easy to call up almost any type of information on the Web.

However, regular Web denizens also know that it is, more and more, a commercial venue. In my searches for retirement planning help--using keywords such as retirement planning--many of the sites I found were sales pitches for services from a brokerage house, mutual fund companies, or personal financial planners.

Still, several commercial sites offer help along with trying to get your business. For instance, Prudential Securities has an interactive calculator on its Web site (http://www.prusec.com/wlth_cal.htm). When I told it that I could save only $200 per month over 25 years, and that I expect a 7.5 percent rate of return and am starting with $50,000 current savings, the calculator told me I'd save close to $500,000 in a tax-deferred account.

The T. Rowe Price site (http://www.troweprice.com/retirement/) gives you a similar financial calculator, as well as detailed information on retirement plan choices and a retirement savings quiz that tests your knowledge of fundamentals. All this interactivity provides mere estimates of your retirement needs. For more accurate planning, the firm also produces both paper-based and software versions of the T. Rowe Price Retirement Planning Kit. You can fill out an onscreen form to request all paper literature, or order the retirement software by calling 800-541-4041 ($15).

At the Web site (http://www.vanguard.com) for Vanguard, another mutual fund company, I found information about its Vanguard Retirement Planner software for Windows and DOS ($18, shipping included). According to the firm, this package helps you set specific retirement goals; calculate your current retirement progress; allocate retirement assets among various securities; and discover how your model portfolios would have done in any period since 1926. The program is highly graphic, with charts in several modules, and it allows you to add retirement funds from pensions, Social Security, and your own savings into the standard retirement plan mix.