Planning for Retirement

April is Financial Literacy Month. One of the most important aspects of financial literacy is understanding how to save for your retirement. This post will give you some ideas for retirement planning whether you’re young and have just started working, or if your retirement is just around the corner. When retiring you will also need to start thinking about assisted living homes. You can start designing independent/assisted care communities. To find the right community for you and your needs.

Cost of Retirement

The Department of Labor estimates that retirees will need between 70 and 90 percent of their pre-retirement income to live comfortably. Social Security provides about 40 percent of that amount, leaving you with the responsibility for the remainder. There are some factors that can lower your income needs in retirement, such as paying off your mortgage and other debts, but most of us will likely need to build up some kind of savings in order to retire.

The cost of retirement is getting more expensive for most Americans, for two reasons. First, we live longer after we retire—with many of us spending 15, 25, even 30 years in retirement—and we are more active. Second, you may have to shoulder a greater chunk of the cost of your retirement because fewer companies are providing traditional pension plans and are contributing less to those plans. Many retirement plans today, such as the popular 401(k), are paid for primarily by the employee, not the employer. You may not have a retirement plan available at work or you may be self-employed. This puts the responsibility of choosing retirement investments squarely on your shoulders.

Unfortunately, only about half of all Americans are earning retirement benefits at work, and many are not familiar with the basics of investing. Many people mistakenly believe that Social Security will pay for all or most of their retirement needs. The fact is, since its inception, Social Security has provided a minimum foundation of protection. A comfortable retirement usually requires Social Security, pensions, personal savings and investments.

In short, paying for the retirement you desire is ultimately your responsibility. You must take charge. You are the architect of your financial future.

Planning For Retirement While You’re Young

Retirement may seem abstract and far in the future at this stage in your life. However, preparing now for retirement is crucial, and the sooner you get started the better.

The biggest advantage to starting young is time. If you put $1,000 into an IRA each year from age 20 to age 30 (11 years), and the account earns 7 percent annually, you will have $168,514 in the account when you retire at age 65. If you don’t start until age 30, but save $1,000 each year for 35 years straight earning 7 percent annually, your account would grow to only $147,913.

Saving for retirement may seem like a strain on your budget right now, but you can start small and grow. Even setting aside a small portion of your paycheck each month will pay off in big dollars later. By starting young, you also can afford to invest more aggressively since you have years to overcome the inevitable ups and downs of the stock market. Developing the habit of saving for retirement now will make it easier to continue saving throughout your working years.

Planning for Retirement When There’s Little Time Left

What if retirement is just around the corner and you haven’t saved enough? Some of these tips may be tough to swallow, but they will all help you toward your goal.

It’s never too late to start. It’s only too late if you don’t start at all.
Commit everything you can to your tax-sheltered retirement plans and personal savings. Try to put away at least 20 percent of your income.
Find ways to reduce expenses in your budget and funnel the savings into your nest egg.
Take a second job or work extra hours.
Aim for higher returns, but don’t invest in anything that you are uncomfortable with.
Retire later. Even working part-time after your planned retirement age may be enough.
Refine your goal. You may have to live a less expensive lifestyle in retirement.
Delay taking Social Security. Benefits will be higher when you start taking them.
Make use of your home by renting out a room, or move to a less expensive home.
Sell assets that are not producing income or growth, and invest in income-producing assets.

Tips on How to Save Smart for Retirement

Start NOW. Don’t wait. Time is critical.
Start small, if necessary. Even small contributions can make a big difference given enough time and the right kind of investments.
Use automatic deductions from your payroll or your checking account for deposit into mutual funds, your IRA or other investment vehicles.
Save regularly. Make saving for retirement a habit.
Be realistic about investment returns. Never assume that a year or two of high market returns (or market declines) will continue indefinitely.
Roll over retirement account money if you change jobs.
Don’t dip into retirement savings.

Article adapted from the U.S. Department of Labor publication of the same title. www.dol.gov/ebsa/pdf/savingsfitness.pdf.