Daily Dupaco

Tuesday, December 25, 2012

The nest egg (part 2)

Are you retirement ready? Many workers are not confident about their retirement plan. This two-part series explores the role Social Security will likely play in your retirement, and what you can start doing today to help boost your nest egg.

The road ahead is likely to resemble the road behind – with ups and downs and some rough spots along the way.

To bolster your path to retirement, it's imperative to start planning today. 

Unfortunately, not everyone is.

The 2012 Retirement Confidence Survey found that more than half of the country's workers, 56 percent, have not tried to calculate how much money they will need to live comfortably in retirement. And with many workers having virtually no savings or investments, only 14 percent of them are very confident they will have a healthy nest egg when it's time to retire.

"Some of these percentages give you an indication that the earlier you can start planning for your retirement and what your needs are going to be, the sooner you can start saving for that," says Dale Repass, chief executive officer of First Community Trust.

"Either that, or you have to come to the realization that you're going to have to work forever."

Assuming you don't want to remain among the employed indefinitely, Repass offers some guidelines to consider as you begin mapping out your journey to retirement:

  • Calculate how much money you will need to live comfortably in retirement. People typically need 70 to 80 percent of their pre-retirement income. "You don't need 100 percent because you don't have payroll taxes and you aren't contributing to 401(k) savings," Repass says. "On the other hand, your expenses are going up potentially if you take more vacations and travel. A lot of people aren't going to want to sit at home."
  • Use the Social Security calculator to estimate how much of your retirement income will come from Social Security.
  • Understand how your retirement will be funded. Here's a typical breakdown of retirement income sources for people ages 65 and older with an annual income of more than $44,129: 40.1 percent comes from earned income; 21.2 percent, retirement plans; 18.9 percent, Social Security; 17.8 percent, personal savings; and 2 percent, other sources. "You need some dependable income and some growth assets," Repass says.
  • Know how much you can safely withdraw from your nest egg each year during retirement. Historically, the rule of thumb is 4 percent. The withdrawal rate doesn't have to be set in stone, but taking out big chunks after a crash like 2008 can cause long-term damage.
  • Create a retirement budget, and start saving today. Look at your sources of income, how they are invested and whether they will keep up with inflation. For help with the budgeting process, visit Dupaco Community Credit Union or First Community Trust, which presents two retirement-planning seminars at Dupaco each year.

"Many times as we're younger, we end up spending everything that we make. And as you get raises, you continue doing that and it's difficult to start putting money away," Repass says. "The earlier you can create the discipline to put the money away, the better you can possibly succeed in retirement."

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