(photo credit: Courtesy)
“I don’t need to worry about retirement because I’m still in my 30s.”
“Retirement planning? I’ll get Social Security and Bituach Leumi.”
“I plan on working until I die, so I don’t need to save for retirement.”
Sound familiar? These are just a sampling of the excuses that I hear regularly for why people have yet to start saving for retirement. If this is your reasoning, then you are not alone. A recent poll by the Employee Benefit Research Institute (EBRI) found that “a majority, 54 percent, have less than $25,000 in total savings and investments (not including their primary residence), and 27% have less than $1,000.”Whoa!
Even more troublesome in the results was that most people surveyed had no clue as to how much money they would need to retire. Additionally, only 16% felt confident that they would have enough money to retire.
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Uncle Sam will take care of me
Don’t think that the government is the answer and that you will be provided for. In Israel, government pensions were created with the purpose of preventing elderly retirees from being thrown out in the streets. While there were never any promises that these pensions would make you rich, there was the assumption that the payments would cover the living expenses of the elderly. After decades of mismanagement and skyrocketing deficits, there is a real possibility that the government will not be able to meet its long-term obligations.
Throughout the rest of the world, governmental fiscal irresponsibility has left social security and other similar programs on the cusp of insolvency. In certain respects social security is like a Ponzi scheme: workers pay in now so that retirees can take out their share. Sounds great for today’s retirees, but what happens in 20 to 30 years when, due to recent low birth rates and baby boomers retiring en masse, not enough money comes in to pay for those claiming benefits?What to do?
To figure out how much money you will need for retirement you need to understand your current expenses. Sit down with a pen and paper and start figuring out how much money you spend each month, as well as annual, one-time expenses. Once you have a handle on how much money you need to live off of each month, you can get a good estimate of how much money you will need to retire.
The general rule in financial-planning circles is that you need 80% of your current income to meet your expenses at retirement. For example, if you are now spending $50,000 a year, you will need to generate income of about $40,000 during retirement to fund your lifestyle.
My personal opinion is that in many cases, expenses actually increase during retirement. Retirees tend to travel, eat out at restaurants and spend on leisure at much higher rates than when they were working. This means you should shoot for retirement income similar or even a bit higher than what you were making while working.Don’t delay
You need to take control of your retirement because it’s not realistic to rely on others to do it for you. Start taking responsibility and begin a savings and investment plan. As financial planners like to say, “Pay yourself first.” This means that when you set up your budget, include savings as part of your expenses. Try and save 10% of each paycheck and have it go directly into an investment account.
There are some basic retirement calculators online that help you get an idea of how much money you need to save monthly and at what investment return you’ll require to meet your retirement goals. Then you should speak with a financial adviser. A financial adviser will use more sophisticated methods to help you work out a long-term personal financial plan and determine how much money needs to be saved monthly and annually, and at what interest rate, to help you achieve your goals.
If you haven’t started to plan for retirement yet, or you think that
you are short-changing you savings, speak to your adviser and put in
place a plan that will help you retire, comfortably, without having to
rely on the firstname.lastname@example.orgAaron Katsman, a licensed financial
adviser in Israel and the United States, helps people who open
investment accounts in the US.
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