An employee with an income of $50,000 at retirement will need to replace 81 percent of that amount each year to maintain his standard of living, according to the 2008 Replacement Ratio Study conducted by Aon Consulting and Georgia State University.

If an employer earns $150,000 at retirement, he will need to replace 84 percent of that income to sustain his standard of living.

But financial planners say that specific situations will dictate the most suitable figure.

The percentage of retirement income depends on such factors as the quality of the retirement lifestyle, length of retirement, final base salary, marital status, number of children in a household, investment returns, federal taxes, inflation rates, medical care expenses and others.

But some say replacement rates above 70 percent to maintain living standards in retirement is “conceptually flawed.” That’s what University of Wisconsin professors John Karl Scholz and Ananth Seshadri write in “What Replace Rates Should Households Use?”

In the 2009 paper, the authors concluded that the optimal replacement rates could be as low as 23 percent for single parents with several children and a negative late-in-career earnings shock (layoff or big salary decrease). For low-income, married households with a few children and a substantial positive late-in-career earnings shock, the rate can be as high as 240 percent. “Large number of factors will affect optimal target replacement rates,” they concluded.

The bottom line: People need to make detailed and accurate estimates of their retirement spending. This can be done on their own or through online retirement income calculators

But seriously, some investors do think that now is the right time to buy certain stocks. However, there’s more to playing the stock market than knowing which company stocks to purchase and when to sell. Inexperienced investors should take the time to learn the ins and outs of the equity market before beginning.

One thing to consider is whether to purchase common or preferred stock. They are the two classes of stocks that are sold by companies. Each is subject to different financial terms.
Common stocks are securities representing equity ownership in a corporation. Owning them usually gives investors voting rights (voting shares) in influencing the corporation’s objectives and policies, determining stock splits and electing the company’s board of directors. One share of common stock is usually equal to one vote.

Common stock shareholders are entitled to a share of the company’s gains through dividends and capital appreciation. Capital appreciation occurs when a common stock’s value increases and investors make a profit when they sell the stock at its higher market value. Dividends are paid from a company’s retained or current earnings typically on a quarterly basis. This payment is not guaranteed, but rather is linked to the market like the price of common stock.

But if the company tanks and is liquidated, common stock investors can claim rights to its assets only after bondholders, other debt holders and preferred stockholders have been paid. Preferred, like common stocks, represent partial ownership in a company. But preferred stock shareholders do not have any of the voting rights in the business available to common stockholders. Companies that want to separate their investors’ economic interests from the actual governance of the business usually favor preferred stock.

Preferred stocks pay fixed dividends that do not fluctuate with the performance of the company. The downside is that the company is not obligated to pay these dividends if it doesn’t have sufficient financial resources. The main advantage of owning preferred stock over common stock is that investors have a greater claim on the company’s assets in the event the company is liquidated.

The general IRS definition states, “Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease and the costs for treatments affecting any part or function of the body.”

Medical expenses include fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and Christian Science practitioners. The costs of equipment, supplies and diagnostic devices needed for qualified medical care services are also tax-deductible medical expenses.

Premiums paid for insurance that covers the expenses of medical care, limited amounts paid for any qualified long-term care insurance contract and amounts paid for qualified long-term care services are tax-deductible.

The cost of transportation to get medical care as well as meals and lodging charged by the hospital, if the main reason for being there is to receive medical care, are includable. Dental expenses are also specifically included as medical expenses.

Among other medical treatment and service expenses includable are:

• Acupuncture
• Alcoholism
• Ambulance
• Artificial teeth and limbs
• Body scan
• Breast reconstruction surgery following a mastectomy for cancer
• Birth control pills
• Braille books and magazines

Capital expenses for special equipment installed in a home or constructions for home improvements to accommodate a person with a disabled condition are considered medical care.

Expenses that are merely beneficial to general health are not. These include vitamins, over-the-counter medicines, toothpaste, toothbrushes, toiletries, cosmetics, a trip or program for the general improvement of health and most cosmetic surgery.

Because there is some room for interpretation, it is important to evaluate each situation individually to see whether the expenses fall under this tax benefit provision. For instance, payments for a smoking-cessation program and for drugs prescribed to alleviate nicotine withdrawal are tax-deductible. The costs of nicotine gum and nicotine patches, which do not require a prescription, are not.