Focus on Retirement: Is There Still Time to Prepare?
In the midst of government shutdowns, looming Federal debt ceilings, and the daily diet of financial news related solely to our political deadlock and the expected impact on the economy, there is a real danger that we could take our eye off the ball with regards to our own financial well being. In particular, retirement planning seems to fall by the wayside when there are so many distractions from taking care of ourselves financially. It is important to be concerned about our mortgage payment, the utilities bills, school tuitions, etc., but none of these should interfere with our longer term needs for retirement security.
Most of us will find ourselves relying upon social security income, some income from a 401k plan, possibly an employer sponsored retirement fund, and the balances in our individual savings accounts to see us through the golden years. Unfortunately, most studies and statistics show that these sources will not be enough for most Americans to enjoy the same lifestyle in retirement as they did while working full time. Additionally, if we do feel comfortable with these sources based on what we know today, will we be unpleasantly surprised by the effects of future inflation once we are subjected to a fixed income distribution in retirement?
Retirement at age 65 is no longer the goal for most working Americans. For the first time in 2010, more Americans said they planned to retire after age 65 than before it, and since then the gap has widened, according to a recent Gallup survey of more than 2,000 U.S. adults, including 636 retirees. More than a third (37 percent) of workers say they expect to retire after 65, up significantly from 14 percent in 1995.Only about a quarter (26 percent) of employees are still aiming to retire at 65. Another quarter (26 percent) of adults are hoping to retire before age 65, down from 49 percent in 1995.
All of these perspectives are very important as we look to the future. In particular, we should attempt to estimate what our resources will be when we retire, and plan how we will transition from a regular paycheck to drawing from our own resources each month. In my opinion, anyone in their early 40's or younger still has ample time to put things in place to ease both the transition to retirement and to bolster the available resources from which they will be able to draw. This column has frequently cited opportunities to improve our personal investing; based on feedback I get from participants in my financial seminars, it is alarming to me that so many people have done so little towards building an investment portfolio to augment any other sources of retirement income.
It is true that personal savings and your 401k accounts are investments. However, experience has shown that even when these sources are supplemented by a social security check, they are not sufficient to carry you through retirement. One point I will continue to stress is that you must start now, regardless of how much or how little you can allocate to building your investment portfolio. For example, it would be hugely beneficial to set aside $50, $100, $200 per month into well managed mutual funds or into pooling money to purchase an annuity. Maybe you are unable to put these sums aside given current expenditures and salary level, however it is imperative that you set aside some amount on such a regular basis.
It is also important to seek the best possible returns on your investments, which can be accomplished through professional assistance. Wealth management professionals can not only help you to budget well and to begin to set aside dollars for your future needs, but they can also help to direct those dollars to the most productive investments. These professionals have a particularly keen eye focused on inflationary trends. Recent years have seen very low inflation rates in the USA based on historical precedence: Wealth management professionals will tell you that this trend is not likely to last. Therefore, building a portfolio that is sensitive to inflationary pressures, i.e., one that will help you to keep pace with inflation, is particularly important.
Based on the Gallup poll results cited earlier, many of us will be forced to reconsider our retirement plans. By starting now and insuring that we take every opportunity to supplement our personal investment portfolios with current income, we will broaden our options when the time comes to make these important decisions.
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©Patrick J. Catania 2013
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs an