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Saving for Retirement is Easier Than You Might Think

Many Americans as young as their late 30's and early 40's are considering postponing their retirement because of the looming threat of financial worries. Already, nearly half of those saving for retirement, 46%, say they will have to postpone retiring, according to a USA TODAY/CNN/Gallup Poll. What was once a solid plan to retire at age 65 is now has become nothing more than a pipedream as an ever-shrinking stock market devours what were once fat retirement plans.

Can You Live on Half Your Income?

Before you say yes, think about living on less than half. The U.S. Social Security Insurance provides benefits equal to 41.3% of pre-retirement earnings for the average worker retiring at age 65. The replacement rate will drop to 36.3% in 2030 for a 65 year old because the normal retirement rates will increase to age 67. This type of benefit cut is especially shocking because most experts say retirees need between 75 to 80% of their pre-retirement income to live comfortably. Yet more than 40% of middle-age households won't be able to replace even half of what they made on the job, according to a study by the Economic Policy Institute. And nearly 20% will have retirement incomes that fall at or below the poverty line. The study, based on federal data between 1989 and 1998, does not even take into account the bear market.

The Retirement Black Hole

The Baby-Boomer generation officially began retiring in 2001 with less than the 75% base income level they expected. Investment funds that were exponentially escalating during the early 1990's bull market plummeted in value when the market crashed, leaving retirees standing at the precipice of retirement surviving with less than two-thirds of their original savings. Compounded by corporate scandals like Enron and WorldCom, where employees were heavily invested in their own corporate stocks that tanked, and a debt-laden Social Security Insurance system, Americans are now facing a national crisis for their retiring population.

What Employees Can Do

While the prognosis for a comfortable retirement may seem grim, there are still many things that can be done to make your golden years less fretful.

Participate early. You're never too young to start saving for retirement. Don't wait five or even ten years to take advantage of your retirement benefit. Let's look at Jack and Jill Smith's situation. Both Jack and Jill are the same age. Jack waits five years to start investing in his company's 401(k) plan and Jill enrolls immediately. Jill's initial $100 per month investment has accumulated to a total of $6,000 in five years when Jack decides to start saving. That may not seem like a big difference, however, in 30 years, Jill will have $150,000 saved in her 401(k) and Jack will only have $95,000 - a difference of $55,000 for the five year jump Jill had in savings.

Use "found money" to add to your savings. By quitting smoking, forgoing that daily mocha latte or taking one brown bag lunch a week, an additional $10-$20 per week can be reallocated to your retirement plan creating a nice little nest egg when you're ready to retire.

Max out your employer's match. The average match is 50 cents for every dollar an employee contributes for up to 6% of the employee's salary. That could mean $1,500 in free retirement money for an employee earning $50,000 annually.

Earmark 2 to 4% more of your annual salary for your 401(k) plan. That might mean another $1,000 to $2,000 a year in savings for someone earning $50,000 annually.

Set up an automatic savings increase plan for the 401(k) plans if you cannot currently meet the maximum by adding 1 %age point more in savings annually until you reach the maximum.

Limit allocations in company stock to 5 to 6%. Congress is also considering legislation that will limit employee dependence on stock options and stock-driven retirement plans.

Don't panic during market shifts and don't leave your portfolio on autopilot. It's great that you've started a retirement account, but don't just leave it to earn or lose money on its own. If you're unsure how to shuffle your investments, talk with an unbiased certified financial planner.

Learn from the current trends and industry data and prepare for retirement now. You'll be glad you made the decision to save when retirement rolls around and you've acquired a sizeable nest egg. To learn more about retirement planning and ways to start saving for retirement, talk with a Fiducial representative today by calling (888) FIDUCIAL or visit the web site at www.fiducial.com.

Fiducial Investment Advisors, Inc. is a member of the NASD and SIPC. Some investments may not be suitable for all investors. Please consult with one of our professionals. Fiducial Investment Advisors, Inc. is licensed to transact business in all states and the District of Columbia as a broker/dealer.

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This page last modified: 28 Mar 2008