For some, retirement may be just around the corner while for others only in their 20’s, the retirement planning has just begun. Although people may be at different stages in their life, planning for retirement is still important at all ages.
There are many things that need to be taken into account when planning for your retirement and how to be prepared for unexpected events.
**Remember: Social Security is NOT Guaranteed – According to an article by Lauren Tara LaCapra on BankingMyWay.com, without any type of change or reform, social security as it is today will not be able to pay out benefits at current levels starting in the year 2041. That means many in their low 20’s will not be able to cash in on their social security when they hit retirement age.
In a report from MetLife Insurance, they discovered that 50% of people who were close to the age or retirement (56 – 65) were not aware of how much money they would need for retirement to maintain their current lifestyles.
An article on MainStreet.com called Know How Much You’ll Need in Retirement, suggest that there are two main factors that you must consider in your planning: quality of life and future income.
Quality of Life – You must determine what type of life you want to live after you retire. You want to be able to save enough money in order to maintain the same lifestyle you live today. Remember, many people when they retire also like to travel now that they have more time, this should also be taken into consideration in planning your budget and savings. Maybe one of the best things to do would be to think of things that you would like to do when you retire and estimate the cost of these activities. But don’t forget to include your everyday needs as well.
Future Income – You may consider using a calculator to estimate how much you should save toward your retirement each year, a similar calculator can be found here. Many people also try to use a financial planner to help them through the logistics. It is their job to help you plan, but it is your decision to decide whether or not you may use their advice.
Just make sure to keep up with your monthly payments when you realize how much you want to save each month. In the short-term, giving up this money each month may seem like an inconvenience, but in the long-run when you are in retirement you will be happy that you took the time to plan and save accordingly.
Check out some other Geezeo articles that may help you with your retirement planning:
How To: Save For Specific Goals
How Much Should I Be Saving For Retirement?
Photo: Digiology
July 10th, 2008 at 5:33 pm
That’s frightening that so many people near retirement don’t know how much money they will need during those years! I think it’s worth meeting with a certified financial planner to figure that out. It’s also important to remember that with modern medicine and more awareness of health, people could easily live a decade longer than they would expect. That’s a lot of extra money you’ll need to live on! Unless you want to be one of those old ladies working at Luby’s, it’s definitely wise to save as much as possible starting as young as possible. I’m only 23, a year out of college, but already have an IRA (though have barely started funding it) and a 401(k) that I put 5% of my income into. It’s really hard letting go of that money now, but I know it will be SO worth it later.
July 10th, 2008 at 7:46 pm
The safe withdrawal rate in retirement is generally considered to be 4%. That’s how much you can safely take out of your investments without going broke before you die.
If you use a ‘financial advisor’, and 95% of them are really brokers: salesmen, then you may well be paying 2% in fees. The studies that found that 4% was a safe withdrawal rate did NOT figure in investing costs.
So, let’s say you pay 1% as a wrap fee. People usually pay between 1% and 1.5%. Then, add in the expense ratio of your funds. That’s usually another 1%. The stock turnover within funds is an additional cost but it’s so well hidden and so hard to figure out I’ll just ignore it.
That’s 2% of your safe withdrawal in fees. That leaves you with…well, let’s find out:
http://fireseeker.com/firecalc.php
Let’s try it.
For example:
I want $40,000 a year and want my nest egg to last 35 years. I have $1 million in my nest egg at retirement. I’m entering 2% as my expense ratio – but it includes an expense ratio of 1% and a wrap fee of 1%. And I have 40% of my portfolio in equities (stocks). Let’s discover my success rate:
“Your plan is to spend $40,000 a year, or 4.00% of your starting portfolio.
FIRECalc looked at the 102 possible 35 year periods in the available data, starting with a portfolio of $1,000,000 and taking out $40,000 the first year of your retirement, and the same amount after adjustments for inflation each year thereafter.
(FIRECalc assumed your retirement portfolio is in investments that perform about like the US stock market as a whole. Mutual funds report each year how well they have performed relative to the stock market as a whole. Such information can help you see how relevant this information might be to your situation.)
The key result: a 30.4% Success Rate
For our purposes, failure means the portfolio was depleted before the end of the 35 years. FIRECalc found that 71 cycles failed, for a success rate of 30.4%.”
Yikes! I’m having a heart attack!
OK, let’s try that again with investment costs of .2%, which is actually about what I pay in fees.
“FIRECalc Results
Your plan is to spend $40,000 a year, or 4.00% of your starting portfolio.
FIRECalc looked at the 102 possible 35 year periods in the available data, starting with a portfolio of $1,000,000 and taking out $40,000 the first year of your retirement, and the same amount after adjustments for inflation each year thereafter.
(FIRECalc assumed your retirement portfolio is in investments that perform about like the US stock market as a whole. Mutual funds report each year how well they have performed relative to the stock market as a whole. Such information can help you see how relevant this information might be to your situation.)
The key result: a 76.5% Success Rate
For our purposes, failure means the portfolio was depleted before the end of the 35 years. FIRECalc found that 24 cycles failed, for a success rate of 76.5%.”
MUCH better. I think I’ll fire that advisor, get myself into some low-cost index funds and cut my spending needs to $36,000. Let’s see….
The key result: a 97.1% Success Rate
Hooray!!!!
Now if I could just control the future of the stock market…..
Folks, this is serious. Please use this tool and show it to others. Talk to your ‘financial advisor’ if you have one and please don’t let him doubletalk you. If he promises you higher returns, get it in writing. (If you do, contact the SEC.)I do not want to see anyone trading work stress for money stress.
I’m betting that no one has a ‘financial advisor’ that showed them this tool and the impact that fees have on your nest egg.
More about the safe withdrawal rate in retirement:
http://www.retireearlyhomepage.com/safewith.html
If you MUST use a financial advisor, use one that charges by the hour or a one time flat fee and make sure he doesn’t have any sales license(s). Make sure he is fee-ONLY, not fee-BASED.
September 4th, 2008 at 2:45 pm
Good Grief! “Social Security is not guaranteed” Good point, only death is guaranteed but you do have to play the averages. This is why people invest in the stock market at an EXPECTED return of 9% rather than burying silver dollars in the back yard. I hate it when people trying to sell financial products make up scare scenarios.
October 3rd, 2008 at 8:59 am
Has anyone heard of a company named Moneymakers? They offer a high interest cd (18%) on a 5 years term. The yield seems to be tax free. However it’s located in the Philippines so I don’t know if I can trust it. Any advice on this would be very welcome!
November 13th, 2008 at 4:06 pm
This is some good advice — very informative! There are a number of ways to prepare for retirement…and they should be done as soon as possible! It's never too early to start preparing for retirement!
Keep in mind, when you begin to prepare for retirement, one company will be there to help you out. They'll be right there along your side as you journey down the road on your way to your golden years!
AARP is a great source of services and information that can be beneficial to the quality of life. What's great about AARP is that a membership comes with prescription and travel discounts!
AARP has teamed up with talk show host, Cristina Saralegui and made a fun, customizable video and you're just a click away from being the next guest on Amigos Live! Check out http://www.upclosewithcristina.com/video to learn more and make your own video!
Also, you can enter to win an all inclusive trip for 2 to Miami while you're checking out the site! (And even if you don't win, there's still those great travel discounts that come with the membership!)
Definitely check out AARP for yourself or a loved one. There are really are some great benefits to joining!
I hope it's alright that I commented on your blog — wanted to let you know about the fun video with Cristina and AARP's great benefits. If you have any further questions, please don't hesitate to email me.
Thanks!
Isabella Coldivar
AARP Ambassador
isabellaAARP@gmail.com
January 7th, 2009 at 5:19 am
f you’ve been planning to retire in the next few years the $2 trillion loss in retirement savings over the past 15 months may make you want to scream. The beating that retirement funds have taken has many people wondering what the heck they’ve been working for all these years if they can’t enjoy the fruits of their labor. You have every right to be upset. But try to stay calm and take some steps to minimize the damage to your overall finances.
Rose.
January 17th, 2009 at 12:00 pm
It's amazing how many people don't plan for retirement, and are shocked when it just comes up to that time and it stares them inthe face.
January 21st, 2009 at 2:06 pm
You provide really good information. I have started worrying about my retirement now. I am 38 years old now. Also the article you mentioned at mainstreet.com is brilliant. Thanks.
January 26th, 2009 at 1:12 am
I loved this article, you have really covered the subject retirement very well. I appreciate this post, thanks.
February 1st, 2009 at 2:48 pm
This blog has meaningful information which can be very beneficial for one's retirement plans. It help me a lot to get started with my retirement plans.