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Retirement: Why
Quit for Good, When You Can Quit for the Better?
- Talking
About Money
- WITH JIM LARRANAGA
- (ARA) - Only
one quarter of Americans age 35 and older have amassed $100,000
or more for retirement, according to the Employee Benefit Research
Institute's 2000 Retirement Confidence Survey. What's more, the
previous year's survey found that 20 percent of "forty-something"
workers haven't even begun saving for retirement. If you're among
them, you might be in for an unpleasant surprise when you leave
your job.
Calculate What You'll
Need
Most experts
say you'll need 70 percent to 80 percent of your pre-retirement
income after you stop working. Given today's life expectancies,
you could easily live 20 years beyond retirement. Seeing just
how much money you'll need in retirement may give you a few gray
hairs, but it can also motivate you to start saving - and fast.
When it comes
to saving for retirement, the sooner the richer. The table below
shows that for every $100,000 in your retirement nest egg, you'd
have to save $2,114 a year for 20 years. Wait just five years
to start saving and your annual contribution jumps to $3,598.
(That's 70 percent more.)
Savings Goal
How Much to
Save Each Year (in a tax-deferred investment with an 8 percent
rate of return)
_________________5
yrs______10 yrs_______15 yrs________20 yrs
$100,000________$16,944_____$6,805_______$3,598________$2,114
$250,000_________42,360______17,013_______8,995_________5,284
$500,000_________84,720______34,026_______17,989________10,568
$750,000_________127,080_____51,039_______26,984________15,852
The American
Savings Education Council reports that those who have calculated
how much they'll need in retirement are more likely to save for
their goal. And, they tend to save larger amounts. Fortunately,
there are a number of tax-favored ways to set aside retirement
funds.
Invest Wisely
Employer-sponsored
retirement plans, such as 401(k)s, provide one of the best places
to squirrel away your savings. You won't have to pay taxes on
the money you contribute until withdrawal during retirement.*
Plus, the contributions don't count toward your current taxable
income. Try to chip in the maximum amount allowed, particularly
if your employer matches all or part of your contribution, which
helps your money grow even faster.
Traditional
and Roth IRAs can also offer tax advantages. With a traditional
IRA, you may be eligible to deduct contributions, depending on
whether you participate in an employer-sponsored plan and your
income. Whether you can deduct contributions or not, your money
grows tax-deferred until withdrawal at retirement. Contributions
to a Roth IRA are never deductible. But they offer a real plus
- tax-free (yes, you read that right) withdrawals at retirement
as long as you meet all the requirements.
Tighten Your Money Belt
Cutting unnecessary
expenses can help you pare down your debt and boost your savings.
Creating a budget may help. List your expenses, starting with
the most essential. Make retirement saving a priority. Finally,
consider paring the expenses over which you have some control,
such as entertainment. You don't have to live like a monk, but
I'm sure you can find ways to cut down discretionary spending.
Lengthen Your Timeline
Time equals
money when it comes to saving for retirement, so staying in the
game for a few extra years can help you stay ahead. Remaining
on the job allows your investments more time to grow and may
boost your Social Security benefits.
Remember -
it's never too late to start building that nest egg.
* Withdrawals
prior to age 59 1/2 may be subject to a 10 percent penalty.
_______________________________________
Author:
Jim Larranaga
is Executive Vice President of Priority Publications, a Minneapolis-based
publisher of financial newsletters.
Courtesy of ARA Content |
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