Saturday, September 6, 2008

Retirement

When You Haven't Saved Enough to Retire

Your best moves are to work more and minimize expenses, a planner says

Posted May 2, 2008

Thankfully, it's rare for someone to reach retirement age only to lose a chunk of his or her retirement savings to fraud. But it's less rare for someone to reach retirement age and have little to no savings at all. According to the Employee Benefit Research Institute, Social Security is the largest source of income for people ages 65 and above, accounting for nearly 40 percent of incomes on average.

Nearing retirement without much savings "is not untypical," says Stuart Ritter, an assistant vice president and certified investment planner with T. Rowe Price in Baltimore. But making some small changes in lifestyle now can pre-empt the need for making huge changes later.

"We do presentations and have a chart that gives people a sense of how much they need to be saving. For example, if you're 50 and have no savings, you need to save 56 percent of your income, and it's not uncommon for people to come up afterwards and say, 'That's me,'" Ritter says. "It's an easy trap to fall into. You have college expenses, you meet someone, you get married, you have wedding expenses, then kids come along, they go to college, and all of a sudden, you're 55 and need to start saving for retirement."

The secret to being ready for retirement is no secret at all: Save early, save often, and diversify. And don't underestimate the importance retirement savings play in your life. "There are a lot of ways to finance everything else you're interested in buying, but when it comes to retirement, you have four sources of income: Social Security payment, wages from working, money you've saved in tax-deferred accounts, and money in taxable accounts. That's it," says Ritter of the growing majority of Americans who lack pensions. "There are no loans, no scholarships; you can't join the Army. The challenge in life is recognizing the importance of your own savings in a successful retirement."

If you reach retirement age and find you don't have enough saved to maintain your lifestyle, Ritter says, the most effective step you can take is delay retiring. That helps in two ways: It increases your ability to save, and it shortens the amount of time that your assets will have to support you.

The second thing you can do is figuring out ways to lower your expenses. "It's far more important that someone come to that realization and prioritize, rather than me saying, 'Here are your priorities.' Some will say the annual family vacation is more important, and they would rather sell their house and trade in the new car for a used car. Some will say the vacations are not important and give those up," Ritter says. "But it's important you do something—that you take actions on the things you can control. People who do that start having less anxiety."

Reader Comments

Work for collective safety net; minimum income for all

The fundamental reality is that the richest country in the world does not afford its citizens with a meaningful collective safety net. We should be about EXPANDING Social Security and Medicare to afford everyone basic shelter, clothing, food, education and healthcare. An honest cost-benefit analysis of the affordability of this would factor in the real costs of social inequity in leaving people without enough to live out our lives.

Saving for Retirement

I thought I was doing the right thing by saving through my company, little did I know that the executives were taking money out and lining their own nest while leaving their employees without a job, lost stock and no retirement fund. At 59 years old their isn't much you can do. It took me almost six months to get over the shock of losing my job along with everything else. Seeing my friends and thousands of my fellow employees lose their jobs all due to the obscene greed of the executives . The disbelief that the federal government would allow this theft. Now most of us have to start over making a hell of a lot less while they get away with a slap on the wrist. For shame on them all. Worse of all, knowing they don't even feel guilty about what they did.

save or invest

Savings for retirement needs to start early, most like myself will not do it as other expenses come up. Some people also in todays economy have been out of work for months or years and can no longer save the way they used to until they decide to downsize which is often difficult with the housing market being what it is. There are a few lucky ones whose parents managed to save during their lifetime and when they inherit their parents estate will be the only time they will be able to retire comfortably. Long term I think rental housing is still a good buy, people must always live somewhere. The best way to buy today is to assume one unit will alway be empty and the remainder of the cash flow show pay for all the exenses. This way when you do retire you will have some sort of cash flow from the property based on how may years you held it.

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