If you are planning on winning
the lottery, don’t bother reading this. For the rest of you, however, it is never
too early to begin planning for a comfortable retirement. Given the new economic
realities of retirement planning, building up a nest egg is a top priority. No
longer can you rely on the government or employer-provided pensions to carry you
through your retirement years. The long-term viability of the Social Security
system is uncertain, given the crush of aging baby boomers who will begin retiring
after 2010.
Generally, the private sector is shifting away from defined
benefit plans — which promise a certain payout for long-time workers after
they retire — to other types of arrangements like 401(k) defined contribution
plans, which place greater responsibility for retirement investing on employees.
Additionally, Americans are living longer than ever before, so to avoid outliving
your savings, you’ll need to set aside more now to finance a retirement that
could last over twenty years.
Unfortunately, when it comes to retirement planning, many people
are more scared than prepared. Three out of four working Americans are worried
about not having enough savings for retirement, yet over half have not begun
to save for retirement, according to a New York Times/CBS poll. Retirement planning
may seem like a struggle, but you can reach your goals if you develop a disciplined
savings strategy.
The first step is to set your goals: when would you like to
retire and what kind of lifestyle will you maintain during retirement? Next,
you may want to contact a financial professional to help you estimate what your
expenses in retirement will be, how much you will receive from Social Security
and your employer’s pension, and how much you’ll need to make up any shortfall
between retirement expenses and income. Full Social Security benefits now accrue
at age 67 for someone born in 1960. Don’t rely too heavily on the rough rule
of thumb that you’ll need about 70 percent of your pre-retirement income after
you stop working — your expenses for health care and leisure activities, for
instance, may increase as you get older.
Whether you have 25 years or five years until retirement, take
full advantage of the time you have until you retire. Obviously, the earlier
you begin, the more you will end up contributing over time. Additionally, starting
early lets you generate a greater payoff down the road due to the process of
compounding — the process by which the investment earnings you accumulate begin
to generate earnings of their own. Compounding benefits increase with time.
Avoid the habit of contributing to your retirement fund only
if there happens to be any cash left over at month-end. Without fail, set aside
a specific amount each month for retirement before paying other bills. Saving
even a small amount regularly is much easier than trying to save it all at once.
Another tip: contribute as much as you can to any tax-deferred
retirement plan offered by your employer. A 401(k) plan, for instance, lets
you contribute pre-tax dollars and exclude any investment earnings from your
yearly taxable income until you withdraw your money later at retirement. As
an incentive for you to save, some employers match some or all of what you contribute,
which can help build up your nest egg even more. Withdrawals prior to age 59
½ are subject to a 10% penalty and income taxes.
Choosing the right investments isn’t easy. Your portfolio will
be shaped by several factors, including your age, time horizon, tax bracket,
and risk tolerance. All investments are subject to varying degrees of risk,
but one type of risk in particular — inflation — is often overlooked. Inflation
erodes the value of your savings over time and takes its toll on most types
of investments, including those, which are considered "safe," such
as money-market funds.
Naturally, you want to be cautious with your retirement savings,
but investing too conservatively can keep you from reaching your goals. Avoid
putting all your eggs in one basket by diversifying or spreading your savings
among several types of investments, such as stocks, bonds and money market accounts.
Diversification may help moderate the risks inherent in investing, but diversification
cannot eliminate the risk of investment losses.
If planning for your retirement seems like a daunting task,
contact a qualified financial professional for help. He or she can help you
devise a strategy to meet your goals and suggest the most appropriate investments
for your retirement portfolio.
David N. Chazin is part of a network of qualified financial
planners affiliated with PlannerConnect. You can reach him at David.Chazin(at)LFG.com,
or to connect with a financial planner in your area please call (800) 318-7848,
or visit www.PlannerConnect.com.
David N. Chazin, is a registered representative of Lincoln Financial
Advisors, a broker/dealer, and offers investment advisory service through Sagemark
Consulting, a division of Lincoln Financial Advisors Corp., a registered investment
advisor,3000 Executive Parkway, Suite 400, San Ramon, CA 94583, (925) 275-0300.
Insurance offered through Lincoln affiliates and other fine companies. This
information should not be construed as legal or tax advice. You may want to
consult a tax advisor regarding this information as it relates to your personal
circumstances.
About Planner Marketing, Inc.
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