How Much Money is Enough?

Retirement. Parental care. College funds. What to save for and how to save

In September 2009, Federal Reserve Chairman Ben Bernake declared “the recession is very likely over at this point.” Thus the road for a number of people toward retirement fund recovery had begun; for many financial advisors, the investing norm prior to the 2008 economic bust had been completely reworked.

Sarah Salomon, a Chicago-based UBS regional sales manager, suggested the financial crisis and its aftershocks may have taken a toll on investors’ financial goals. “Getting back on track starts with a strategic plan that makes sense in today’s financial world.”

And for the many boomers finding themselves simultaneously saving for children’s college funds, caring for aging parents and planning for their own retirements, the question of “How much is enough?” has never been more complex and difficult to define.

The New Normal
In this global economy with many more unknowns, the trend is diversity. “That’s the new world we live in,” says Susan Templeton, founder of Oak Brook-based Stafford Wells Advisors. While stocks and bonds were previously the favorites, now real estate investment trusts, commodities, international investing, oil and gas futures, and other products all play a key role. The objective, Ms. Templeton says, is to build so that if and when the market goes negative, your portfolio doesn’t fall all at once.

Mellody Hobson, president of Ariel Investments, likens diversity to a balanced diet. “You want to have stocks and bonds, but a few different types of bonds and some things that are really high octane,” she says. While stocks are needed for growth, bonds, on their own, can be too conservative and aren’t necessarily the right strategy for recovery, adds Ms. Hobson.

While it’s never too late to start building (or re-building) a nest egg, the final financial goal depends on one criteria: lifestyle. That means taking into account housing, food, energy, health care, transportation, personal expenses, entertainment and leisure on either a monthly or annual basis. Many websites, like www.walletpop.com, offer “cost calculators” that will run the numbers for you.

The best way to get started remains the same: investing in a 401K or a Roth IRA. Dorothy Bossung, executive vice president of Lowery Asset Consulting, advises maxing out employer-matched funds because “it’s the miracle of tax-deferred compounding and it’s forever.” Both Roth and traditional IRAs are protected under law thanks to a broad statute.

Taking Precautions
“People need to be aware that they’re not bulletproof,” cautions Michaeline Gordon, who has been an estate attorney in Chicago for 25 years. Suffering a substantial loss can be avoided with proper planning, she notes. Asset protection is key, and can be done by taking advantage of numerous exemptions available in Illinois.

Julie Vander Weele, a senior managing director with Mesirow Financial, says even a “modest start” can be important when building a retirement or other long-term savings account. Just as the gas and electric bill are paid monthly, Ms. Vander Weele recommends a budget that gets “paid” each month to these accounts.

Again, Ms. Bossung emphasizes the importance of mutual fund or a bond ladder diversification. “The idea behind it is to keep having money mature in a money market account and an emergency fund in a case of a job loss,” she says. For college savings accounts, our experts nearly unanimously recommended a 529 tax-deferred plan.

Long-Term Care
With all talk of cuts to Medicaid and Medicare, not to mention people living longer, the need for long term care insurance (LTC), which provides long term care in the event of an illness or job loss, is more pertinent than ever. Whether you’re contemplating a policy for yourself, aging parents or even a disabled sibling, a LTC policy can help provide some cushioning against rising health care costs.

Statistically, women are more at risk than men for needing long-term care. The New England Journal of Medicine reports that 49 percent of people 65 and older will need long-term care.

Ms. Bossung believes LTC insurance has always made a “heck of a lot of sense,” because, without it, retirement savings can be wiped away in an instant. But be sure to carefully research cost versus benefits before investing in LTC. According to www.longtermcare.gov, the average monthly cost for an assisted living facility in Chicago is nearly $3,000; the daily private nursing home care rate is $164. The current annual cost of long-term care in Illinois, adjusted for inflation, is more than $526,000. When researching a LTC policy, adds Ms. Bossung, it’s important to look at the benefits the policy has to offer, as well as the waiting period for coverage to begin, which can drive the policy up.

While the U.S. may be on the road to recovery, most wealth advisors say it’s important to stay the course. Ms. Hobson cautions against “going for broke.” Instead, research your options, talk with a trusted financial advisor and plan the best route to financial security for your individual situation.

Photo: UBS Regional Sales Manager Sarah Salomon consults with a client in her Chicago offices. She is wearing an Akris jacket, $3,500, and Akris top, $695, Saks Fifth Avenue; 312.799.5211. Styled by Deirdre Bormes of Saks Fifth Avenue Club; 312.799.5211 x311.