Although thousands of Baby Boomers celebrate their 60th birthday each day, research shows that a vast majority of these individuals are not financially prepared for retirement. Baby Boomers face financial challenges no previous generation has encountered, including pension terminations, skyrocketing health care costs, uncertainty about government programs such as Social Security, decreased personal savings rates and significantly increased life expectancy during retirement.
How Much Retirement Income Will YOU Need?
Government research has determined that most Americans need between 60 and 80 percent of
pre-retirement income in order to maintain their current standard of living during retirement. However, many financial experts have raised this figure to between 80 and 100 percent of pre-retirement income, citing skyrocketing health care costs, lengthening life spans, and the ever-present threat of inflation - which can rob a retirement portfolio of purchasing power over time.
How much income you will need during retirement will be a function of your goals, time horizon, and spending habits. Obviously, those who want a vacation home or will travel frequently will need more than those who prefer to stay at home. A few questions you should ask yourself include:
Will your support of children or grandchildren continue after retirement?
Will you travel or take vacations in retirement?
Will your mortgage be paid off prior to, or soon after retirement?
What will your tax bill be during retirement?
Sources of Retirement Income
Once you have estimated your needs during retirement, you can begin working on your potential sources of income. In general, your income sources will fall into one of these three categories:
1) Government sources. The Social Security system was created during the Great Depression to supplement retirement income. Today, most experts question whether the system will remain solvent throughout the 21st century at current benefit levels. A retirement plan should account for a potential, increase in retirement age or cuts in benefits that could reduce your monthly Social Security check.
2) Employer-sponsored plans. Many employers offer company-sponsored retirement plans, which generally fall into two categories. Defined benefit plans, which are normally funded by the employer and guarantee a retirement benefit based on a formula comprising number of years on the job and employment earnings. For example, a traditional pension is a defined benefit plan. Defined contribution plans, on the other hand - such as 401(k), 403(b), and 457 - rely on funding from employees, matching funds from the employer, or a combination of the two. The employee owns an account balance (subject to company rules regarding vesting) of contributions and earnings and assumes the investment risk.
3) Personal savings is probably the most overlooked aspect of retirement planning. Personal savings may include, balances in savings accounts, directly held assets, home equity, shares in a partnerships or businesses, and could even include collectibles such as artwork, antiques and coins. Retirees will need to rely on these assets for any potential shortfalls of defined contribution plans, pensions or social security; therefore, planning must be done to ensure these assets are protected.
How to Get - And Stay - On Course
How can you determine whether you’re on track to reach your retirement goals, and to make adjustments if necessary? A financial Planner can help you develop a sound financial plan based on your specific situation, monitor it regularly to ensure you’re making progress toward your objectives, and recommend occasional adjustments to help you stay on course.
Michael Dinich is an adviser with the firm Your Money Matters Michael is a Registered Financial Consultant and Chartered Retirement Plans Specialist. For More information about Retirement planning visit; http://www.boomertirement.com
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