Planning Retirement
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Retirement...

  Some things you should know

How much income will I need when I retire?

 

Its impossible to say exactly how much youll need when you retire, in part because the amount will be based on so many variables. Someone who owns a home debt-free and is in perfect health, for example, will have lower expenses than a frail person who must live in a nursing home with round-the-clock care. As a general rule, some experts say you will need about 75% percent of your current gross monthly income to maintain a similar lifestyle after you quit working. Others say you will need 100% , so, if youre grossing (before taxes) $4,000 a month now, figure on needing perhaps $3,000 to $4,000 a month when you retire. Better yet, do a retirement budget. If you are like most people youll want to spend enough money on travel and leisure to offset any reduced living expenses. If you plan to do a lot more traveling or take up an expensive hobby, you might need considerably more than that.

 

I pay a lot of money into Social Security. Why cant I depend on that for my retirement?

You can probably depend on some form of Social Security when you reach retirement age, but you cannot afford to rely solely on Social Security to fund all of your retirement expenses. Americans are living longer, which means they are draining the system by collecting payments longer. The first of the Baby Boomers havent even begun drawing Social Security benefits yet, and there are fewer young people to pay the taxes that fund payments to older retirees. A cut in future Social Security benefits is inevitable. Sums up "Wealth Enhancement & Preservation" (The Institute Inc.,
Denver): "Times have changed. When we began the Social Security system, we had many more workers paying into the system than we had workers drawing funds out. Today, we have only three workers for every two people drawing funds out of the system. Essentially, our children cannot afford us. Social Security was never intended to provide 100 percent of a persons retirement income. It really cannot be expected to do so in the future."

 

Why would someone in their 20s want to contribute to a retirement plan?

It's never too early to begin saving for retirement, regardless of which savings vehicle you use.  It's tempting to avoid saving for retirement, especially for people under 30. After all, they reason, they'll have 30 or 40 years to build a retirement nest egg. But one of the most powerful reasons to start saving early is that the earnings on your retirement funds will begin compounding sooner.

 

How much of my annual pay should I be saving for retirement?

Exactly what percentage of your annual salary you should earmark for your retirement years depends on a variety of factors. Two key factors are your current age and the lifestyle you hope to lead when you quit working.

 

As a general rule, financial experts say you should take at least 10% of your annual pre-tax income and set it aside for retirement. You should put even more than 10% away if you plan on lots of travel, expensive hobbies or other extravagances.

 

You will also need to save more than 10% of your annual income for retirement if you are already middle-aged and havent been saving much. If you reach age 50 and dont have much of a nest egg, experts say you must begin tucking away at least 20% of your pre-tax earnings for retirement to have even a hope of maintaining your current lifestyle when you quit working.

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