Plan Now for Comfortable Retirement

Saving for retirement isn't what it used to be. The metaphor of retirement as a three-legged stool – supported by a pension, savings and Social Security – is no longer adequate for lifelong financial stability. Like everything else in our increasingly complex economy, preparing for retirement is, well, complex.

The reasons are varied. For one thing, Americans are living a full decade more than their grandparents. For another, traditional pension programs have given way to defined contribution plans, such as 401(k) plans, that are controlled by individual employees and do not guarantee a return. And many feel the ever-reliable third leg of the stool – Social Security – is no longer a sure thing.

These changes are causing many people to re-think retirement, with some planning to extend their careers longer and some taking steps to reduce their cost of living during retirement. Regardless of whether you plan to spend your retirement in your current neighborhood or on the beaches of a tropical isle, there are steps you can take to secure the retirement you want.

To make sure your retirement plans are adequate:

• Determine how much you will need to live comfortably after retiring. Among the many online options are the retirement calculator on the Bankrate.com website (http://www.bankrate.com/calculators/retirement/retirement-calculator.aspx), or the Ballpark E$timate tool at the Choose to Save website (www.choosetosave.org/ballpark/), which poses a series of questions in helping you decide how much you will need.
  
  
• Know how much you must save every year to reach your goal. The earlier you begin saving for retirement, the better. For example, $100 a month invested in an account that yields 6% interest compounded monthly will increase to $100,451.50 in 30 years. Because interest rates and investment return vary over time in many types of accounts, it is advisable to diversify your approach. To estimate the amount you will earn in a fixed-rate, compound interest investment, you can use an online compound interest calculator, such as the one on Bankrate.com (www.bankrate.com/calculators/savings/compound-interest-calculator-tool.aspx).
  
  
• Stay on top of your finances. According to the 2011 Retirement Confidence Survey (RCS), worker confidence in having enough money to live comfortably throughout their retirement years has continued to decline, with the percentage of workers reporting they are not at all confident has climbed to a new high of 27 percent. To avoid getting behind schedule in your planning and saving for retirement, monitor all savings and investments, both in your private accounts and your business (e.g., 401(k), pension) accounts. Be sure to include the amount you expect to receive from Social Security in your calculations To find the estimated amount you can expect from Social Security at retirement, based on your current level of contribution, use the online estimator on the Social Security Administration’s website (www.ssa.gov/estimator/). Total all gains to ascertain your progress. If the numbers are disappointing, consider adjusting your approach to better meet your projected needs. Bear in mind that, given the sometimes volatile nature of the American economy, some years are likely to be more lucrative than others.
  
  
• Consider long-term needs. Because Americans now live longer than ever before, they face unprecedented financial challenges. Not only must savings stretch to cover more years, they must be substantial enough to help pay the costs of medical care not currently covered by Medicare or standard supplemental policies. Long-term care insurance is a relatively new option that may provide some relief. Your financial adviser can suggest other alternatives.
  
  
• Don't leave your future to chance. The national savings rate is extremely low, having dropped to about 1% in the early years of this century. The 2011 Retirement Confidence Survey shows that 74% plan to work in retirement (up from 70 percent in 2010), whether for pleasure or necessary income. To ensure that you have a choice, put aside as much money as possible as soon as possible. Make sure you account for the impact of taxes and inflation. The younger you are when you start contributing, the more you will accumulate. You may want to consider seeking the help from a financial planner. Remember: inadequate savings can lead to financial crisis later in life.

Additional Resources:

Publications

• Retirement Confidence Survey summaries online at www.ebri.org/surveys/rcs/
• "My Retirement Paycheck" website from the National Endowment for Financial Education at www.myretirementpaycheck.org
• Retirement Planning Articles, AARP materials online at www.aarp.org/money/financial_planning/

Web sites

• Choose to Save (www.choosetosave.org)
  
• U.S. Social Security Administration (www.ssa.gov)
  
• AARP Retirement Planning Resources (www.aarp.org/work/retirement-planning/))
  
• Kiplinger.com Retirement Planning Center (www.kiplinger.com/yourretirement/)
  
• MONEY/CNN Ultimate Guide to Retirement (www.money.cnn.com)

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