WRITTEN BY GREG BOOTS.
COUNTLESS AMERICANS ARE IN DENIAL ABOUT RETIREMENT.
Consider that 60% of workers have less than $25,000 in investments and savings, according to a March report from the Employee Benefit Research Institute. That’s barely enough for an individual to scrape through for a year of retirement, much less 20.
What’s going on? Part of the problem may be that Americans feel their finances are just too tight right now to invest for a goal that lies far in the future. And I suspect that many are counting on Social Security to make up the shortfall in their retirement expenses.
Overestimating your Social Security income in retirement can be a costly mistake. Here’s the reality: A 45-year-old in the middle of a successful white-collar career might draw just around $1,500 if he or she were to retire at age 62. Waiting until age 70 could double that amount. But if $3,000 a month seems like a decent income stream, you may want to factor in inflation: In 25 years, at a very conceivable annual inflation rate of 3%, that $3,000 would only have about $1,500 of buying power.
And that’s assuming that Social Security completely avoids the budget knife in Washington’s debt negotiations. Bottom line: Social Security isn’t a magic solution to the retirement crisis that lies ahead for millions of Americans. A true solution starts with retirement planning.
Retirement planning allows you to envision your retirement and understand how much you’ll need to retire comfortably. For those who are diligent savers, a plan can provide peace of mind that they’re on track.
For those who are behind, having a clear numerical goal can be a huge motivator to take action, whether it’s saving more, changing careers or planning on working a bit longer.
Working with a financial planner can also give you the perspective, tools and confidence to take action. Even folks who feel they don’t earn enough money to start investing often change their minds when they learn how even small, regular contributions can add up.
A retirement planning client might be surprised to find that if she puts $200 per month into a retirement account and earns an annual return of 6%, she’ll have $14,341 after five years. By then she may be able to increase her contribution to $400 a month or more—and her savings will really begin to snowball.
It’s important to understand that retirement planning is critical even if you’re quite wealthy and don’t “need” Social Security. Regardless of your income or wealth, a clear plan is the key to a comfortable retirement.
