Categorized | Advice, Life

Take Steps Now to Prepare For Retirement.

Posted on 11 May 2009

When should you retire? The answer is simple: Whenever you can afford it. Retirement is fueled by four sources.

  • Pension plans
  • Social Security
  • Tax-deferred savings
  • Basic (taxable) savings

This is a good time to evaluate your situation and come up with a workable retirement plan of action.

Do You Qualify?

Retirement before age 65 is for a select few. For those who sold a dot-com for millions of dollars, won the lottery, inherited oceanfront property on Martha’s Vineyard or sold Cisco stock at 86, retire now if you feel you’ve worked enough. It might even be time to “give back,” like executives who made their fortunes many times over. For example, John Sculley, former CEO of Apple and Pepsi, runs an incubator for startups and bankrolls a children’s show for public television.

Even for the fabulously wealthy, retirement is expensive. For example, if you’re under 40 and have recently sold a dot-com, life would seem to be good. But to retire, your income from that transaction would have to be at least $4,000,000 to accommodate a yearly budget of $100,000, if you plan to live until you’re 80. In addition, that money must be invested wisely so capital gains tax and other income expenses can be absorbed.

Americans must be more aggressive about saving if they want to maintain their current lifestyle in retirement.

The Big Picture

For the most part, retirement is a choice based on numbers. If you’re an average Joe with above-average intelligence, take a look at the following numbers:

  • This year, 200,000 Americans will turn 65, according to the National Commission on Retirement Policy. In 15 years, 1.6 million will do so.
  • Fifty years ago, an American’s life expectancy was under 65 years of age. Today, it is over 75.

These facts are offered to illustrate a point. In the next 15 years, Social Security will be insufficient even for the most frugal-minded retiree.

Look at this ratio difference. The commission reports that 50 years ago, that more than 40 workers would paid into Social Security for every one beneficiary. In 14 years, when baby boomers begin to retire, there will be fewer than three workers per beneficiary. That means the social security benefits pool from is being drained and current spending levels on entitlement programs are not sustainable.

The commission says we’re not saving enough. We consume too much and save too little. For example, “In 1996, Americans between the ages 30 and 49 had only accumulated one-third of what they will need to retire [and] one economic study indicates that half of American families have below $1,000 in net financial assets.”

The numbers show that Americans must take more responsibility and be more aggressive about saving if they want to maintain their current lifestyle in retirement.

Retirement Exit Strategies

So for those who did not sell a dot-com for millions of dollars, win the lottery, inherit ocean front property on Martha’s Vineyard or sell their Cisco stock when it was at 86, it’s time to execute an exit strategy.

  • Use one of many retirement planners proffered on the Internet, by investment banks and by financial programs such as Quicken. But keep in mind that these plans are not for the faint of heart. They do the numbers right in front of you and estimate to the penny how much you must save and invest to live a decent life as a retiree.
  • Begin or continue to invest in a 401(k) plan, either at your job or independently through Fidelity Investments or another well-known plan.
  • Begin saving. A number of financial consultants agree that the best way to ensure that money will be put aside is to have a budget with yearly benchmarks of targeted savings. If you can devise an automatic savings plan through your bank or employer, all the better.

Unless you want to face your golden years at a fast-food restaurant, either as an employee or patron, run–don’t walk–to your local investment counselor or Internet-based retirement site to devise a plan. It won’t be easy in the current economy, but by the same token, this could be an indicator of things to come. Start saving!

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- who has written 11 posts on Higher Education and Career Blog.

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1 Comments For This Post

  1. McGreenGal says:

    Thanks for this great article. It’s never too early to start saving money and preparing for the future.

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