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Quicken your retirement risk management with Larry Ferstenou's book You CAN Retire Young. This following article alerts you to the realities of pension plans and the Social Security Administration. At the same time, planning for retirement has never been easier--thanks to books like You CAN Retire Young and financial planning tools like Quicken.
Planning for Retirement Has Never Been EasierBy Larry FerstenouAuthor of You CAN Retire YoungIf you’re 50 or younger and your goal in life is to work forever, then read no further. However, if the thought of one day quitting your full-time job to do whatever you want in life has more appeal, then it’s time to start planning for the future.
What Will You Retire On? Social Security and defined-benefit pensions (otherwise known as employer-funded or traditional pensions) are the major source of income today for retirees. If those two sources of income were to continue as is for the next few decades, we could all feel better about living comfortably in retirement. But that’s not going to be the case. 1. Defined-benefit Pensions: Employer-funded pensions have plummeted over the past 20 years and continue to decline on an annual basis. Whereas most employees working in government and education are covered by traditional pensions, the Pension Benefit Guaranty Corporation (http://www.pbgc.gov) reports that 80 percent of Americans working in the private sector today do not have defined-benefit pensions. Of the roughly 20 percent who do, there is an increasing concern about the growing number of plans being under-funded by employers – in other words, the money may not be there when it’s time for retirees to begin collecting. 2. Social Security: According to a January 2004 report by the Social Security Administration, “In 2018 benefits owed will be more than taxes collected, and Social Security will need to begin tapping the trust funds to pay benefits.” The fact that this program will be insolvent in an estimated 14 years should concern most Americans. As for tapping the trust funds, if you haven’t read my article “Will Social Security Be There for You?”, now would be a good time to do so. Social Security was never meant to fully fund anyone’s retirement. While it replaces about 40 percent of pre-retirement income today, it will very likely be less in the future. Social Security will continue paying some level of benefits for a long time, but the bulk of your retirement income will need to come from other sources.
Time for a Reality CheckIf you are hoping to one day retire (whether earlier or later), now is a good time for a reality check. · Are you counting on Social Security to provide a good share of your retirement income? If so, where do you think the money is going to come from? · Do you have a defined-benefit pension to look forward to? If so, is it being adequately funded? · If you are among the 80 percent of private-sector workers who don’t have an employer-funded pension, are you investing enough in your 401(k) or other retirement program to fund your own future retirement? · If you’re self-employed, are you funding a Keogh, SEP, or SIMPLE? · Have you established an IRA and are you investing as much as possible into it? · If you don’t have any of that, or if you have a minimal amount invested for retirement at this point, then it’s clearly time to sit down and formulate a plan that will get you where you want to be in the future.
Planning Ahead Has Never Been Easier You may be thinking that you don’t have the expertise to plan your own retirement. Fortunately, it’s never been easier. Many financial firms and mutual fund companies offer free retirement calculators and/or planning programs on their Web sites – but they aren’t all created equal. Some calculators merely compute how much money you will have if you invest a given amount over a period of time, while others are full-featured planners that allow you to input multiple factors like salary, savings, current investments, rate of return expected, anticipated Social Security benefits, and the amount of income you want in retirement. The programs then calculate how much money you will have (or what your shortfall will be) and how long it will last, and adjust the figures for the inflation scenarios you enter. Once you’ve spent a little time learning how the programs work, it’s easy to spend hours manipulating figures and entering different scenarios if planning for your future is something you are genuinely interested in doing. Over 100 calculators related to budgeting, saving, credit cards, college, retirement, and much more can be found at the Web site of the American Savings Education Council (www.asec.org); click on Savings Tools and then Financial Planning Calculators. For a comprehensive retirement planning program that allows you to input multiple factors and then vary inputs to run different scenarios, click on www.quicken.com/retirement/planner/. I’ve found this planner to be easy and fun to use. It won’t answer all your questions, but it’s a good place to start, it can help you keep focused, and it can help you gauge the progress you are making.
It’s Never Too Early or Too Late It’s never too early to start planning for retirement; in fact, the earlier you start the better. But neither is it ever too late. If you can’t count on your employer or the federal government to take care of you in retirement (which is going to be true for most baby boomers and those younger), then now is the time to sit down and seriously start figuring out how you are going to support yourself. With the calculators above, planning for the future has never been easier; it’s also never been more essential.
Larry Ferstenou retired 11years ago at age 42 and is the author of You CAN Retire Young: How To Retire in Your 40s or 50s Without Being Rich (American Book Business Press, 2002). More information can be found at www.youcanretireyoung.com. Copyright © Larry A. Ferstenou, 2004.
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