Do your retirement plans include working?
Most of us dream of one day being able to leave our jobs and start living the life that we've always wanted. We've imagined joining our favourite golf club, seeing more plays, wining and dining and perhaps having time to sit and enjoy the grandchildren.
What if that time never came?
What if you were still working past 60 or even past 65 because you couldn't survive on the meagre savings you had accumulated? It's becoming more and more likely that this will be your reality.
Jeff Brown from the Philadephia Inquirer made this statement in his article "Why we aren't saving enough?" [Link since removed];
Only seven in 10 workers are saving for retirement, and fewer than half of them have tried to figure how much they need to save.
I would hazard a guess that most of those who are saving for retirement aren't in their 20's or 30's either. As human beings our tendency is to live for the moment, assuming that retirement is an aeon away and can be dealt with the closer we get to it.
Deborah Fowles from About.com's FinancialPlan challenges our thinking on this;
If you don't start now, you'll never be able to catch up without putting away much more money later, when you'll have other demands like raising a family and funding your kids' college educations.
Tomorrow seems much easier doesn't it. We already understand our immediate needs and know that every cent is spoken for. If we had to save for retirement now then our present quality of life would suffer and herein lies the point.
Why don't we like budgeting? Why is it easier to spend on a credit card that we need to repay than to save cash from our income? Why is it we don't plan and then stick to it?
Because naturally we live for the moment. We're fatalistic, and what's worse, optimistically fatalistic. We believe that we'll be okay and that life will sort itself out. Brown says;
Most people are stunningly overoptimistic. More than 60 percent expect retirement income from a plan sponsored by an employer, such as a traditional pension. But only 40 percent report that they or their spouses actually have such a plan.Most expect to live as well in retirement as they do now, but think they can do that with only 70 percent of their current income. That's unlikely.
So how can this be remedied?
Start today. If you leave it for another 5 years you'll miss out on the compounding effect of your money and find you will need to save even more.
- Calculate your required retirement fund This isn't as hard as it sounds. Decide what current income you will need based on your preferred style of living. Do you want to live on the same monthly income as you are now? Can you live on less as your mortgage should be paid by then?
Use an online retirement calculator to figure out the amount you need to be putting away now.
- Create a savings plan Look at your current expenses and find some that you could live without so that you can start saving for retirement. Takeaway may have to be kept for special occasions, the grocery money may need to be spent on no-name brands and you might like to cancel that magazine subscription.
- Find a good fund manager Once you're saving your income you don't want to waste it on an incompetent fund manager. Do you homework and research the best managers who are consistently returning good profits.
- Utilise and government award schemes In Australia we have two ways that the government rewards those who save for retirement. The first is through salary sacrifice where people can have funds deducted from thei gross salary and transferred to their superannuation fund without being taxed.
They are also offering tax payers up to $1500 towards their annual contributions of $1000 or less which has come out of their net salary. Both of these schemes help and the sooner you avail yourself of them the quicker they will become useful.
If you plan to enjoy retirement then you need to plan - NOW!
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Comments
If a person has to work to support his/her retirement then I have to ask whether that person has really retired (working for other reasons is a very different matter). Planning to continue working (even part time) to fund retirement is also a very risky strategy - health issues and other factors increase the odds of being unable to work or to find work as we age.
Posted by:traineeinvestor | June 13, 2006 9:48 AM
My point exactly.
It's worth thinking that most people who retire in the next 2-3 decades won't have enough money set aside for their retirement and will need to supplement it with at least a part-time job.
As you say, this is incredibly risky when you consider health issues (unable to work) and increased medical expenditure.
Posted by:Stu | June 13, 2006 10:16 AM