Financial Futures

I recently read a startling statistic that less than half of Americans have put aside money specifically for retirement. Unless you are wealthy, it is not possible to retire with peace of mind about your financial security unless you actually prepare for it. This means taking action sooner rather than later.

Though Dennis is still a few years away from retirement and has visions of playing a lot of golf, he needs to engage in the retirement planning process now. This process is designed to help him gather enough funds to enjoy his retirement, and it encompasses a review of his expected needs, an analysis of his existing assets, and a determination of any additional accumulation or savings needed. In planning for our retirement, we all need to consider the following points.

Inflation
First, inflation can be one of the biggest obstacles to a successful retirement plan. Too many existing retirees and people around Dennis's age are invested in fixed income or other similar investments that cannot possibly keep pace with inflation. So when a 4 percent inflation rate increases an annual income need from $25,000 to nearly $50,000 in 15 years and their income has actually remained at $25,000, retirement becomes a bust. Did you catch the pun?

Social Security
Although Social Security has jokingly been referred to as "anti-social insecurity" in recent years due to reports that it will go bankrupt if changes are not made soon, I feel fairly confident that it will remain in some form or another. However, it was never meant as a full-blown retirement plan. In fact, the higher one's income during the working years, the lower the percentage of income that Social Security will actually replace. Relying on Social Security benefits alone will most assuredly result in an income near the poverty level. Nevertheless, it should be examined as a part of one's retirement plan. In that regard, Dennis and others approaching retirement should consider contacting the Social Security Administration (SSA) to determine what the actual benefits will be. The SSA also has a very helpful Web site where you can request a statement of estimated benefits.

Employer-Sponsored Retirement Plans
On a similar note, contact your human resources director or employee benefits personnel about the benefits to which you will be entitled when you retire. What type of plans do you have and to how much will you be entitled? What are your withdrawal options? Will you receive a monthly income or will you be able to roll over the plan assets? If you will receive a monthly income, should you consider requesting distributions based on the joint life expectancy of you and your spouse so that he or she may also receive the benefit in the event of your death? An understanding of your employer's retirement plan(s) may greatly aid in developing a detailed plan. I realize that this seems rather obvious, but too many of my clients are not fully aware of the benefits available to them, so it bears repeating here.

Determining Expected Income Needs Dennis or anyone else planning retirement should be very specific about their expectations and their goals should be measurable. It is insufficient to say that you want to retire comfortably. Instead, specify at what age you intend to retire and determine a dollar figure that you would like to receive. If you have several goals during retirement, such as building a cabin on the lake or traveling around the world, prioritize them. Determine which is the most important and allocate your resources to it first. Then, when it is fully funded, you can allocate your resources towards the other goals.

If Dennis determines that he will fall short of his retirement goals, then he will need to consider re-positioning his assets into other investment vehicles from which he can expect to earn higher returns. For a review of these savings vehicles, see my advice for Dennis on optimizing savings.

Expert Advice for Dennis
The Planning Process
Selling Your Home
Optimizing Savings
Preparing for the Home Stretch, from our sponsor, Merrill Lynch

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