by Sylvia Blair
With the right mix of forethought and sound retirement strategies, a comfortable and secure retirement can be within reach.
Retiring comfortably may seem out of reach for many people as they consider their financial future. The notion that, once you stop working, your savings have to last for the rest of your life can be daunting. Where to even start?
Setting clear financial goals and creating the discipline to save are the first steps.
Fifty-year-old Lou Leyes is a small-business owner in York. At age 23, he started saving 12 percent of his pay for retirement. His advice is to put away as much as possible up front, so that a portion of your earnings go into savings automatically.
Leyes and his wife enjoy two comfortable incomes. They maintain a careful blend of spending and savings. Their financial situation also eased up a bit when their children grew up and left home.
“Our cash flow has improved, and we are moving ahead with confidence. The most important advice is to be constantly aware of where you are in your plan, because retirement goals are not static,” he said.
How Much is Enough?
How much should individuals save in order to retire when they wish to? The amount requires careful calculation, and takes into account anticipated expenses and the types of savings that will fund them.
The most important factor in realizing confidence is knowing how much to spend in retirement. “Other factors include the amount of risk in an investment portfolio and income sources, such as Social Security and pensions,” said Christopher Stock, a senior wealth advisor at Domani Wealth in Hanover.
Jim Dunlop, a wealth advisor at Thrivent Financial in Gettysburg, said that many people aspire to maintain about 80 percent of their preretirement income when they retire.
“I think that can be misleading,” he said. “I am advising a couple now who work a great deal of hours. Even so, they will need more income in the early years of retirement than they have now, because they plan to do a great deal of traveling,” said Dunlop.
He is also working with another couple who currently live on only 30 percent of their earnings. They save the other 70 percent of their salary. As a result, their income needs will be significantly lower in retirement, thanks to the frugal habits they have established. The couple feels confident that their life expectancy will probably not outlast their savings.
The Golden Rule: Start Saving Early
Financial advisers urge their clients not to delay retirement savings. There will be financial drains that were not encountered during the working years, such as rising health care costs and the expense of long-term care insurance. And prospective retirees need to take into account that Medicare and Social Security may not kick in right away.
Setting aside significant portions of a paycheck can be a daunting idea, but time can be on your side. CNN Money reports that a contribution towards retirement of $60 per month for 35 years (a total of about $25,000), at a 7 percent annual rate of return on the investment, will turn into $100,000. And that’s a good start.
Keep a Budget
Maintaining a budget while still working is an effective way to establish wise spending habits. When grocery shopping, use a prepared list to eliminate impulse buying. Compare prices before making large purchases. Pack a lunch instead of eating out. When possible buy used instead of new. And evaluate spending on utilities, home services and auto maintenance, with an eye towards cutting costs.
Ryan Fox is a financial adviser for Huston-Fox Financial Advisory Services LLC in Gettysburg. “Give up that Disney trip for a year or two and add that money to your retirement savings,” he said. “You can always get a loan for Disney later in life, but there is no loan to fund your retirement savings.”
Confidence as Retirement Nears
If your retire in your early 60s, you might live for another 30 years. That means your retirement planning needs to be for the long term.
“Because I believe we should plan for a long retirement, individuals should still be long-term investors,” said Dunlop. “The shift that I think we need to make as we get closer to retirement is to ensure that the funds to live on in the next several years are safe and not exposed to volatile investments. However, individuals should also enter retirement by allocating funds for the long term and taking appropriate risks in diversified portfolios,” he said.
With creative strategy, savings discipline, and a clear plan, you can take the anguish out of retirement, and face the next phase of life with confidence.
Ways to Save
Equities are funds used to purchase shares of stock in a company, according to Kyle Kocher, a senior vice president at PNC Wealth Management. Common shares of stocks represent ownership in a company, which gives investors a claim on its operating performance and a share of the company’s profits.
A pension is a type of retirement plan that guarantees a specific benefit to participants at a certain retirement age. Pensions require the sponsoring employer to contribute, over a period of time, whatever amounts are necessary to fund these benefits. It’s a good idea to choose the option that allows a surviving spouse to continue to receive income.
Many employees can direct their employer to contribute part of their salary to a 401(k) account. The contribution is untaxed, and employers often match their employees’ contributions — essentially giving you a raise while helping secure your future financial health.
Individual Retirement Accounts (IRAs)
There are two primary types of nonemployer-sponsored IRAs — traditional IRAs and Roth IRAs — that earmark savings for retirement. With both types of IRA there are various eligibility and contribution limits, and varying tax benefits.