Living Longer Means Your Retirement Account Has to Live Longer Too

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Tenured Financial Advisor Rings the Alarm for Retirement Planning

According to the National Center for Health Statistics, the average American's life expectancy is 77.6 years. And while that is good news from a health perspective, it's also bad news for those who planned for their retirement funds to last only 10 - 15 years after they retired at age 55.

The continually increasing life expectancy rates should be a retirement planning wake up call. With Americans living longer, retirement woes are ahead for many people who thought they had enough money socked away for retirement. According to the Employee Benefits Research Institute, that includes many Americans. A study by the Institute revealed that more than half of American workers between the ages of 45 and 54 have saved less than $50,000 for retirement. This is woefully inadequate according to Rick Junk, a Hunt Valley, MD-based CERTIFIED FINANCIAL PLANNER™ professional.

"Investors really need to pay attention to how long they're going to live and budget accordingly," Junk said. "If your annual salary is $50,000 a year and you have saved $500,000 for retirement, assuming a 6% return and a 3% inflation rate, that money will only sustain your current lifestyle for about 10 years. Once you begin drawing down your principle, you won't have nearly as much money to grow through compound interest. And if you have that money stashed away in a CD or money market account, after taxes, chances are you will not keep pace with inflation. With life expectancy rates as they are, chances are you will outlive your money."

Junk warns that in addition to thinking about your life expectancy, retirement planners should also think about how long a spouse or partner will live.

"You don't want to leave your husband, wife, or partner high and dry when you pass away, so you have to ensure that you consider him or her in your retirement planning equation," he said. "The retirement phase is only completed when both you and your partner are deceased."

In addition to low retirement savings account levels, the problem is compounded when investors use a retirement account as if it's a bank account - especially if they tap their savings before reaching retirement age. Studies show that 25 percent of 401(k) program participants take out a loan against their retirement plan.

"I can't stress this enough. The important things to remember about saving for retirement are to be responsible, save as much as you can, and resist tapping into your retirement accounts too soon," said Junk. "Retirement accounts are set up with provisions to allow you to take out a loan for a home purchase or other family hardship, with the conventional wisdom being that you pay yourself back with interest. But be aware that taking out a loan against your retirement account can have major tax ramifications now - in addition to depleting your nest egg for the future."

For example, on a $10,000 retirement account loan paid back over five years at a 9.25 percent interest rate, payments including interest total $12,529 in after-tax money. For a person in the 30 percent tax bracket, that is equal to $17,897 before taxes, which means the taxes paid on the loan equal $5,369. In addition, once you retire and begin withdrawing from the account, an additional $3,759 in taxes will have to be paid, assuming a 30 percent tax bracket. So, by taking out a $10,000 loan, the cost in before and after taxes would total $9,128. In those terms, it makes a loan hardly worth the cost.

Junk hopes to dispel the myth that taking a loan against a retirement plan is a sound financial strategy.

"The fact is, you don't earn a dime when you 'pay yourself interest' on a loan you've taken against your retirement account," said Junk. "You're just moving money from one pocket to another. This is one of the most common misconceptions associated with retirement plan loans."

Junk also warns that just because a person has retired and can tap into their retirement accounts doesn't mean they have free reign to use the money any way they wish. "Most people don't have enough stashed away in their retirement accounts to splurge on a boat or a vacation home," said Junk. "This is the money you'll have to use to pay living expenses. As such, the money has to be allocated and budgeted as responsibly as you would with your paycheck."

"Planning for retirement can be complicated. There are so many variables and unknowns," Junk said. "Living longer means your retirement account has to live longer too. You really should not leave the future to chance."

About I. Richard Junk, CLU, CFP®

Rick Junk is an independent, fee-based registered investment advisor representative who specializes in investment management, retirement planning and estate conservation. He has over 34 years of experience in the financial services industry. He is a member of the Financial Planning Association and received the CFP® mark of distinction from the CFP Board of Standards in 1983. He earned the Chartered Life Underwriter designation in 1979, widely recognized as the highest level of studies in the life insurance profession. Junk graduated from Dickinson College in Carlisle, Pennsylvania with a B.S. in biology.

Rick Junk is committed to educating the community - especially younger generations - about financial management and retirement preparedness. As a mentor for young adults he strives to improve their financial literacy as well as personal confidence and life management skills. His philosophy regarding personal fiscal responsibility can be summed up in one simple sentence, "Stop the excuses and start the saving."

Visit for more information about Mr. Junk and The Junk Investment Group.


When you need an expert to speak on complicated financial topics in a straight-forward, easy-to-understand manner, please call Rick Junk.

Securities offered through Securities America, Inc. Member NASD/SIPC. Rick Junk Registered Representative. Advisory services offered through The Junk Investment Group. The Junk Investment Group and Securities America, Inc. are not affiliated.


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