Feature Stories - March 2005

Retirement in Nevada

Going Gray in the Silver State

by Caroline Keller

Many people have chosen to retire in Nevada, because it has no personal income tax, a mild climate compared to Eastern and Midwest cities, and provides access to a variety of leisure activities – from world-class resorts and golf courses to historic ghost towns. It also has a relatively low cost of living, although the spike in housing costs over the last two years has changed that somewhat. It is certain that many of the 7,000 people migrating into Nevada each year have come here to retire, and long-time residents choosing to stay in the Silver State after finishing their careers are also contributing to the graying of Nevada.

But Nevada’s aging population is not unique. Across the U.S., statistics show an increase in the number of people ages 65 and over, due partly to decreased mortality rates among older Americans, and also to the aging baby boomer generation. Census data show that by 2030, about 20 percent of the U.S. population – 71.5 million people – will be older than 65, and 9.6 million Americans will be older than 85.

Why is retirement planning important? Because the same statistics show that persons reaching age 65 can expect to live an additional 18.1 years (19.4 years for females and 16.4 years for males).

The current debate about the future of Social Security has brought the question of retirement planning to the forefront, as more and more people come to realize that the safety net set up by Uncle Sam in the 1930s is becoming threadbare and full of holes, and may not survive into its hundredth year.

Vince Eckelcamp, of Eckelkamp Retirement Planning in Las Vegas, said the government is now encouraging people to save more because it recognizes the Social Security system won’t be able to support all the baby boomers, as the ratio of workers-to-retirees keeps decreasing. "In 1950, there were 16 workers paying into the system for every person receiving benefits; now the ratio is 3-to-1, and it will soon be 2-to-1. We can’t tax two workers enough to support one retiree," he explained. For this reason, it provides tax benefits for establishing 401(k) plans and individual retirement accounts (IRAs), as well as a number of other plans, including defined-benefit and defined-contribution programs for business owners.

Large companies, and even some mid-sized firms, used to fund pension programs for employees that would provide a steady income in addition to Social Security. However, Eckelkamp said today’s workers are much less likely to have a company pension, for two main reasons. First, people switch jobs frequently – the days of working 30 or 40 years for the same company are long gone. Secondly, company-funded pension plans are few and far between because of the tremendous expense involved. More companies are offering IRAs instead, because they are cheaper. A recent report from General Motors showed the auto giant spends approximately $5 billion each year on healthcare benefits for retirees, which amounts to $1,500 for each GM car purchased.

Eckelkamp said people tend to wait till the last minute to think about planning for retirement. "In their ’20s, they’re spending money on hot cars and having fun; in their ’30s, they’re raising kids and think they can’t afford to put anything aside; in their ’40s, they’re spending money sending the kids to college; then they reach 50, and think it’s too late – why bother?" He said most of his clients come to him for advice in their late ’40s or early ’50s. "Time is the most important consideration – more important than rate of return – and yet we wait till the last minute to start saving," he said.

The logical time to think about retirement planning is the mid-’30s, when a person has established roots and acquired basic necessities like housing and furniture, according to Laif Meidell, vice president of Reno-based American Retirement Planners. "That’s the time to set up a savings and investment plan," he explained. "What I see all too often is people who wait to do any planning till they turn 50, and then it’s like their hair’s on fire. Retirement is suddenly much closer than they ever imagined."

"Too often we spend 40 or 50 or more hours a week working to earn money, but very little time figuring out where it’s going," said Eckelkamp. "We focus on earning as much as possible, but don’t think about how to manage what we’ve earned. It all goes back to the old motto of The Five P’s: Prior Planning Prevents Poor Performance."

Lance Bradford, CEO of L.L. Bradford & Co. CPAs, said retirement planning has two interrelated components: financial planning, which involves determining how much income needed and maximizing the return on investment; and asset protection, which aims to minimize risk and allow you to pass your estate to heirs. "You need to see both sides," said Bradford. "If you only look at the investment side, you may choose something that offers a 12 percent return, but it’s a junk plan. If you can’t afford to lose your investment and start over, it might be smarter to go with a less risky plan that offers 6 percent. A good retirement planner needs to have a broad range of knowledge, so he or she can balance out these two sides and do what’s best for the client."

Meidell agreed it’s important to choose investment vehicles that help minimize risk. "Avoiding losing the money you’ve invested can be just as important as hitting it big," he pointed out. "If a market downturn causes you to lose a large percentage of what you’ve saved, it can be devastating psychologically, and might cause you to stop your investment program altogether, so limiting losses definitely has value."

What are the odds of reaching your goal? Meidell said many software packages designed for financial planning contain a "Monte Carlo" module, programmed with statistics about various investment options. A variety of scenarios can be put into this software, and it will predict the odds of you outliving your money. Plans can be changed as necessary, to help increase the chance of a favorable outcome.

Asked if he had one piece of advice to give people considering an investment plan, Meidell said it would be to take a realistic look at their family’s finances. "Do you look at your home finances the same way you would at an income statement for your business?" he asked. "What about your personal balance sheet? Do you know your net worth? If you develop that kind of perspective, you’ll have more success in planning your future."

It’s important to meet with financial advisors periodically to make sure retirement plans are on track. "Think of it as an annual physical to monitor the health of your financial future," Bradford suggested. When asked how early people should begin to think about planning for retirement, his answer was, "Birth."

One expense people may want to plan for is long-term care in the event they become unable to care for themselves in their later years.

Governor Kenny Guinn recently kicked off "Own Your Own Future," a statewide awareness campaign produced in conjunction with the U.S. Department of Health and Human Services, the National Governors Association, the U.S. Administration on Aging and the National Conference of State Legislatures. The campaign aims to educate citizens about the need to plan for long-term care needs. Many people mistakenly assume that health insurance, disability policies or Medicare will pay for long-term care. Gov. Guinn said, "National statistics indicate that about 60 percent of people will require some type of long-term care assistance."