Financial expert Deanna Booker, who serves as Community Outreach Manager for local nonprofit Consumer Credit Counseling Service of MD and DE (CCCS), says there are many reasons why consumers fail to prepare for retirement. "They may think there's always going to be time to plan or be distracted by other financial concerns, like how to cover expensive car repairs and still pay the mortgage this month. They may think that planning takes too much time or resources or that when the time comes, things will just sort themselves out. But time flies, and before you know it, retirement is here. When it arrives, those of us who haven't planned may enter a phase of limited opportunity and worry."
CCCS Executive Vice President Lori Jankalski empathizes with consumers who have trouble envisioning what will happen once they retire. "When I was younger, I figured I would spend my retirement in a rocking chair not doing much of anything because I'd be old at 65. Now that I've reached my 60's, that age doesn't seem old to me at all, and I have a completely different idea of how I'm going to spend my retirement. I plan to travel, enjoy my hobbies, and hopefully acquire new interests."
Jankalski's thoughts on retirement reflect a subtle shift in how most of us view growing older. Life expectancy for American consumers has increased 25 percent in the past 50 years, so older adults may now spend several more years in retirement than previous generations. Booker points out that today's
retirees are likely to enjoy more active lives, but they also will pay a heftier price for living longer. "This is another big argument for starting to plan as early as possible. That way you'll have time to build the assets you might need to cover expenses like travel or financial setbacks like serious illness or the death of a spouse."
Jankalski also believes that when it comes to planning for retirement, it's more important than ever to take a proactive role. "Years ago when you just received a pension and Social Security, it was simpler. The company and the government more-or-less planned your retirement for you. But now options like 401-K plans and IRAs require more from us. To make informed decisions, we have to understand what retirement choices are available and how things work.
Luckily, there are lots of retirement resources available to help us become aware." In the Resources section of CCCS's website (www.cccs-inc.org), it has a calculator to help you determine how much you need to save for retirement. In the Education section, its online "Women's Wealth" e-Learning course also offers investment information and retirement advice. Both these resources are completely free.
Booker recommends that consumers begin planning for retirement by evaluating how much it currently costs them to live. She advises, "Take a look at your personal budget. How much income do you presently bring in each month? How much do you pay for monthly living expenses? How much do you owe on debts? How much do you regularly put into savings? The answers to these questions will give you a snapshot of your current financial situation."
The next step is to figure out your retirement income and expenses. How much can you expect to receive from pension and employee plans, investments, and benefits? SSA's online calculator (www.socialsecurity.gov)
will give you an estimate of your Social Security earnings. Before you consider retirement expenses, Booker suggests thinking "about how you hope to spend this phase of your life. For instance, do you plan to stay in your current home or relocate to be closer to family? Factors like this will affect your bottom line. Once you total things up, does it look like you'll have enough financial resources to afford retirement?"
Booker says, this "before and after" reality check is an eye opener for most consumers. "It's easy to think that Social Security will cover everything. But when you run the numbers, you suddenly see it probably won't, and by the time many of us reach retirement age, these benefits may cover even less. However, it's not all doom and gloom. No matter what stage of life you're in, planning now can help you attain the balance and structure to retire with a good quality of life."
If you're on a limited budget, you can still accumulate money for retirement. To do this, Booker advocates pinpointing where your money currently goes. "Record all your expenditures, no matter how small, in a spending journal for one month. Review the journal and look for ways to cut back. Then place the money you free up into emergency and retirement savings.. Even small amounts saved now may compound over time. Learning this habit will make it easier to transition to the future because retirement generally involves living on a fixed income."
Jankalski advises, "When you have money automatically taken from your paycheck and deposited directly into savings or 401-K, you don't even miss it. Pay yourself first or consider savings a bill. That way it will get paid."
If you belong to an employee retirement plan, like a 401-K or 403-B, take full advantage of this resource. Booker says, "You have to know the particulars to get the most out of these plans. Check with your company's human resource staff or plan provider to find out how yours works and how you can maximize your benefits. If your organization offers a match, take full advantage of this option. Also make sure you understand any restrictions
or tax limits that apply."
Jankalski agrees. At earlier jobs, she put funds into a 401K plan. Now she contributes to the 403B program at CCCS. Both programs provide tax deferred savings. She notes, "IRAs are another vehicle to use. My financial planner has helped me decide how to invest the savings to suit my individual life and family circumstances, and I have a separate account that's specifically for retirement."
Personal debt is a final area Booker recommends tackling before you retire. "If you have credit card bills or student loans, strive to pay these off now, so they won't follow you into retirement. If you aren't sure how to do this, CCCS can help. We have free, confidential budget and credit counseling. All our counselors are certified. You can get advice at one of our local offices or by phone." Consumers can call CCCS for a counseling appointment at
1-800-642-2227 or visit
www.cccs-inc.org for more information.
In preparation for retirement, Jankalski has paid off her credit cards and mortgage. She's also read extensively and taken an adult education course to learn more about the stock market, mutual funds, and other investment options. She notes, "There are lots of free retirement resources on the web. There are also professionals you can pay an hourly fee for impartial advice. Those who don't charge, generally get paid by selling you investment products instead. The key is to start early and gain as much knowledge as possible, so you can retire with confidence when the time arrives."
