Planning for Retirement in Hopes of a Secure Future By Dr. Bernice Wilson, Resource Management Specialist

Planning for a secure financial future should be given some thorough consideration. Many Americans are retiring before the age of 65 and based on current trends, are expected to live longer. Therefore, for some people the future may seem far-off, but for others the future is now.

Citing the Bureau of Labor Statistics in their book titled Practicing Financial Planning for Professionals, authors Sid Mittra, Jeffrey Kirkman, and George Seifert reported, "It is estimated that 70 to 75 percent of pre-retirement income is needed to continue at a comparable lifestyle during retirement." They go on to say, "Where will this money come from? The Social Security System currently provides a maximum annual benefit of around $13,500, no matter how high the pre-retirement earnings."

The amount of money needed for a secure retirement is going to depend on how much an individual can save or invest toward his or her retirement goals. Pension and social security may not be enough to maintain a comfortable retirement level. On the other hand, living in retirement may not be what one had expected because inadequate financial preparation could leave the retiree with a less than desirable nest egg. In other words, an individual discovered too late that their available retirement money is not enough to sustain them.

It's also possible that life circumstances can become more complicated and dictate an early retirement. Another instance could be that an individual is unaware of the eligible age to receive full benefits from pension, social security, or individual retirement accounts (IRA). The Employee Benefit Research Institute (EBRI, 2003) made this public statement about retirement planning.

"If current patterns continue, there will be an annual shortfall of at least $45 billion by 2030 between the amount retired Americans need to cover basic expenses and what they have. In collaboration with the Milbank Memorial Fund, EBRI suggests that while middle-income Americans could provide for their own future by saving 5 percent of compensation annually in addition to the retirement benefits they are already expected to receive; this remedy won't work for many in the lower income brackets."

The Institute further stated that low-income single women who have limited resources will find it hard to save enough for retirement. "In most cases, they would have to save 25 percent or more of their pay annually to adequately fund basic living expenses in retirement, including nursing home or home health care costs."

Some individuals may own a home or have equity in a home and will be able to secure a reverse mortgage from this home ownership value that could be turned into cash. Yet, this option may not create enough revenue to eliminate the financial shortfall they could experience as a result of insufficient retirement funds.

Mittra, Kirkman, and Seifert (2002) indicated that in 2002, about 76 million Americans or 28 percent were older than 50, and by 2020 there will be 40 million more in that group that amounts to 36 percent of the population. Many Americans will remain low-income, with no home ownership, no health insurance, and very little income outside of social security income and other government-sponsored programs. Based on future forecasts, The Retirement Confidence Survey, published in 2000, made the following observations.

"The amount of money that workers have accumulated for retirement is generally low, and many people appear to be falsely confident about their retirement security. Workers may also find their retirement planning has been inadequate because they hold false expectations about the age at which they will be eligible for full social security retirement benefits, the age they will retire, the length of their retirement, and the sources of their retirement income."

Mittra, Kirkman, and Seifert (2002) suggested these four steps in planning for retirement:

1. Pre-retirement expenses should be estimated.
2. On the basis of step 1, monthly or annual retirement expenses needed to maintain the desired standard of living should be determined.
3. The total expected income from all sources, including government-sponsored plans (social security), corporate retirement plans, personal retirement plans (such as IRAs and Keoghs), personal savings, and employment during retirement should be estimated.
4. If the expected income falls short of the expected expenditure needs, appropriate steps should be taken now to alleviate the anticipated retirement income deficit problem.

Mittra, Kirkman, and Seifert (2002) also provide this convenient classification of key sources of income available upon retirement:

• Government sponsored plans
• Corporate retirement plans
• Personal retirement plans
• Personal investment
• Employment during retirement.

Furthermore, authors Satinsky and Jackson reported that typical retirement planning should begin at least 15 or 20 years before retirement. This will normally place clients solidly in their most valuable years with the maximum potential for savings.

In summary, a personal retirement plan will be very valuable for retirement. Individuals need to take it upon themselves to save for retirement early. Time is money!

References
Employee Benefit Research Institute. (December 4, 2003). EBRI News. Retrieved June 21, 2006.

Mittra, S., Kirkman, J., & Seifert, G. (2002). Practicing financial planning for professionals (7th ed.). Rochester Hills, MI: RH Publishing, pp.10: 2-3.

Satinsky, L & Jackson, D. (2004) Tools & techniques of financial planning (7th ed.). Cincinnati, OH: National Underwriter Company, p. 145.

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