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Saving For Your Retirement | Bob Williams

Saving for YourRetirement: Is Your Goal to Eat Steak or Hot Dogs?

Why should you save for retirement?  Because retirement is the most expensive goal many people ever have to save for.

Retirement is supposed to be your time to relax and enjoy life’s pleasures without the pressure of your daily work routine.  In order to live the lifestyle you desire in retirement, you must have sufficient monies and savings.  We all know that life is expensive.  Daily living expenses, health care costs and other activities can quickly exhaust any income from your pension or Social Security retirement benefits.

Why is this more important for our generation?  Because people are living longer.

Saving for retirement is difficult because it requires you to defer gratification.  You may ask, “Why shouldn’t I just enjoy my money now?” It’s an enticing option.  While there are lots of practical reasons to focus on putting a portion of your paycheck away into 401(k) or other retirement accounts, it’s still tough to do it. If you think saving is hard now, consider how difficult it will be when you’re 65 years old.

There are three main factors in retirement savings: amount saved, time to save and earnings on the savings. Among these, the one you have the most control over is the amount saved.  You have limited time to work and save. Seeking higher returns means taking more risks, and the ramifications of taking on higher risk should be abundantly clear after the last few years.  Since the amount you save has a large effect and it’s the variable that you can have the most control over, that’s where you should focus your attention. Now let’s take a look at some other considerations:

Many find that they can comfortably afford activities like dining out, travel and convenience items with a secure income from their employment.   In order to maintain your same standard of living without having to economize, you will need sufficient retirement savings to cover any gap between your monthly retirement income and your expenditures.  If you anticipate that your expenses will rise after retirement, you’ll likely need some supplemental funds.

Your retirement monies can allow you to live more comfortably during your golden years. As we age, it’s a very real possibility that assistance for cleaning, performing daily routines or household maintenance requirements will be needed. Savings and financial reserves can allow for payment of any needed care or services without burdening your family members. Adequate funding is critical if you want to choose how and where you want to live. Your retirement savings may enable you to stay in your home or select the retirement facility of your choice.

You may live longer than you think.  Through better lifestyles and advances in medicine, people are living a lot longer than they used to.  Just half a century ago, people spent just five to 10 years in retirement but now the average American retiring at age 65 can expect to live 18 years or more.  According to the U.S. Administration on Aging, persons reaching age 65 have an average life expectancy of an additional 19.2 years*.  And since Social Security accounts for only about a third of total aggregate income for aged persons**, Social Security alone may not be enough to take you through your retirement years.  It takes a lot of planning to fund a longer retirement.  Unforeseen circumstances such as health problems, the death of a spouse or the need to provide financial assistance to children or other family members can require additional funds.  Saving for your retirement can let you establish a financial cushion that can help you manage any unexpected events and allow you substantially greater choices over your living arrangements, activities and options as you navigate through your life’s changes.   What is the most reliable method to ensure that you can enjoy your “golden years” and maintain the desired standard of living without worry?  It’s simple—start saving as early as you can.

The adequacy of your retirement savings can determine your ability to fulfill your lifelong aspirations or dreams. Whether it’s painting, traveling or obtaining an advanced degree, these cost money.  Once retired, if you have built your retirement savings to a comfortable level, you can be free to work toward those goals or personal achievements that you were unable to accomplish during your working career. The cost of fulfilling your retirement goals should be considered when determining how much money you will need during retirement.

Retirement is expensive. Assuming a 3% rate of inflation, a 40-year-old making $25,000, would need an income around $52,000 per year to have the same quality of life in retirement. You must take charge of your financial future. The key to a secure retirement is planning. Experts estimate that you will need about 70 percent of your pre-retirement income – lower earners, 90 percent or more – to maintain your standard of living when you stop working.

The traditional pension plan is disappearing quickly. If you work in the private sector, it’s a fairly safe assumption your employer no longer offers a pension plan. People are living longer and as such, it’s difficult for traditional pension plans to support the extended years of retirement and increasing health care costs.  As a result, many companies are freezing their pension plans and new employees cannot participate. In the public sector, pension plans are more common; however, there are significant changes there as well. Many have been reworked with substantial benefit reductions.

Don’t depend on Social Security to be your only source of income when you retire or become disabled. The Social Security system faces an uncertain future, so it is best to invest on your own rather than depend on it.  Today, the Social Security fund receives more in taxes than it pays out in benefits as it always has, but due to an enormous increase in the aging population, it is estimated that in 2017, the Social Security fund will begin to pay out more in benefits than it collects in taxes.  Without a change, by 2037 the trust funds will be exhausted and the payroll taxes collected will be enough to pay only about 76 percent of benefits owed. Your personal savings may have to fill this gap. The most recent projection from the Social Security Board of Trustees estimates the Social Security trust funds will be exhausted in 2033, which is three years earlier than the last projection.  As projected, beginning in 2033, a retiree will receive only about 75 percent of the Social Security payout they have earned unless changes are made to the system. Currently, Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement.  If no changes are enacted, the benefits paid out are estimated to drop to 30% of pre-retirement income.

You should receive an annual statement from Social Security Statement estimating your benefits and when you can receive it. For more information, visit the Social Security Administration’s Web site at or call 1-800-772-1213.

Saving for retirement now may help to lower the overall tax burden on your income. Diverting part of your earnings into a tax-deferred investment vehicle such as a 401k or IRA may reduce your current tax obligation and, using the generally accepted assumption that you will be in a lower tax bracket due to a reduced income in retirement, you may lower the amount of taxes owed upon withdrawal.

If you choose not to work towards establishing retirement savings, there could be some forced sacrifices during retirement.  Most people would rather be independent for as long as possible.  Are you willing to move in with adult children and their families or other relatives? How badly do you want the freedom to travel and maintain your independence?  One in six Americans is now living with their extended family and multigenerational households are becoming far more common.  If you don’t have supplemental savings, those retirees without pensions and facing reduced Social Security benefits could find themselves forced to move in with other family members.  Saving for retirement means foregoing some purchases now or other enjoyable elements of your lifestyle, but the savings will provide you more freedom and independence later in life.

*Source: National Vital Statistics Report, Volume 61, Number 6, October, 2012

**Source: Fast Facts & Figures About Social Security, 2012, Social Security Administration

Bob Williams




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