Sacramento 916-357-5660 | Los Angeles 310-571-8896 | San Jose 408-467-3860

    Resource Center

    Singin' the Middle-Aged Blues

    Last weekend I had a chance to catch up with my brother-in-law-the-doctor at a family party. As is usually the case, within about five minutes of the "Hi, how are you's" and the "How are the kids," we got to talking about the economy, our jobs, the stock market and how much value our retirement accounts lost since summer 2008. Each of us (both in our early to mid-50s), thought we had long investment horizons and were heavily invested in equities when the crash happened; we also had spent much of our discretionary income earned over the past four to six years on college tuition and related expenses for our kids. Here's the box score version of what we figured out.

    On the minus side of things:

    • Each of us had lost between 30% and 40%, both inside our retirement plan accounts and outside our retirement accounts (mainly decreases in the value of our homes).
    • Unless the values of our retirement accounts and homes come roaring back (and then some), we most likely will have to either defer our dates of retirement (that is continue working beyond 65) or prepare for a somewhat different type of retirement than we had originally planned.

    On the plus side of things:

    • We were both grateful to have sound professional practices and we still were in reasonably good health.
    • Because we each had just survived the years with kids in college, we knew how to tighten our belts a little and how not to spend everything we earned (that wasn't going to Uncle Sam).

    On balance, we concluded that:

    • We each needed to go home and review our retirement planning projections and assumptions (to see if they still seemed realistic). For those of us who don't have financial planners on our payroll, we can at least start by looking at a few simple financial calculators such as the ones found here.
    • We each needed to think very seriously about ways to increase our overall retirement savings, preferably on a pre-tax basis, by putting more into our retirement plans.

    One possible way to really catch up would be by installing a so-called cash balance pension plan on top of a current 401(k) profit sharing plans – that is, by putting more away than the $54,500 annual amount permitted under a defined contribution plan alone (including age 50 catch-up contributions).

    A few minutes working with a simple financial calculator revealed the following:

    Beginning Balance

    Amount Lost (35%)

    Approximate Annual Deposits Needed To Catch-up in 5 Years (7% return)










    When I got home after the party, I sent my brother-in-law a link to an article I had co-authored on cash balance pension plans. It looks at the suitability for use by professional groups where the owner-professionals are already maxing out their contributions under a defined contribution plan.