Being Ready When You Pack It In

No matter your age, you need to be preparing for your retirement years.

By William J. Lynott

Is it too early for you to be thinking about retirement? Are you too young to be concerned about life after you’ve packed it all in?

I hope you know the answers to those questions by now.

The younger you are when you start applying the basic principles of sound money management, the better your chances of accumulating the kind of money you’ll need to enjoy the good life in your leisure years.

A million dollars may seem like a lot of money to you now, but if you’re young—say under 40—even a million bucks won’t be enough to live like royalty or anything close to it by the time you reach retirement age. And if you’re older than 40 and haven’t yet stashed away that million dollars, you’d better get to work today.

If you expect to enjoy a comfortable retirement, you’re going to have to arrange for it yourself.

Retirement will sneak up on you faster than you could ever imagine. When it does arrive, it can be one of the most carefree, fun-filled times of your life . . . or one of the most dreadful. Which way it turns out for you will depend almost entirely on how well you prepare for it.

Signing Off
After more than 25 years of writing this column, I find it necessary to lighten my workload a bit. Because of that, this is my last column in the “Your Money” series. You’ll still see my byline from time to time though. I especially want to thank all my loyal readers over the years, many of whom have become good friends, as well as the editors who have provided this column to you, the readers.

A retirement free of financial worries is a blessing. A retirement spent in debilitating worry about how to keep up with the relentless increases in the cost of everything you need to survive can be horrible. If you don’t think so, just ask someone who is struggling to get by on Social Security and perhaps a small pension.

Whether your age is 25 or 55, the most important question you need to ask about your retirement is, “How much income will I need to maintain my present lifestyle?”

Know Your Needs

Unless you’re a CPA who specializes in retirement planning, you probably don’t have a clue. Unfortunately, most people don’t think much about retirement until it looms just over the horizon. By then, it’s often too late to take the simple steps that can assure comfortable and rewarding leisure years.

Many financial planners say you will need 80% of your pre-retirement income in order to maintain your current lifestyle in retirement. So if you earn $80,000 per year just before you retire, you will need $64,000 per year to maintain the same lifestyle. If your annual income is $120,000, you’ll need $96,000 per year to retire in the style to which you have become accustomed.

Rest assured that kind of income isn’t going to materialize out of thin air. If you expect to enjoy a comfortable retirement, you’re going to have to arrange for it yourself.

No one else is going to worry about your financial health in retirement—not your employer, not your banker, not your brother-in-law, not your old English teacher. If you don’t take care of it yourself, it won’t happen. (Unless you have an uncle named Warren Buffett who loves you. In which case, you can stop reading now.)

And keep this in mind: When it comes to estimating your need for retirement income, you are far more likely to underestimate what you will need than overestimate it. If there are any financial surprises in this equation, they probably will be unpleasant ones.

Yes, I understand you have Social Security. But all you can count on from that government program is a little gravy. Have you ever tried to eat a plate of gravy by itself? Probably not. Please keep that ugly picture in mind as a reminder you’re going to have to provide the meat and potatoes of retirement yourself.

Making it Easier

The good news in all this is the U.S. Congress has made it easier than ever to feather your retirement nest. They’ve laid out a smorgasbord of attractive retirement programs that earlier generations could hardly have dreamed of.

Still, they’re not going to do the basic work for you. You have to do it for yourself.

And that brings us to one of the most important principles of sound money management: You must participate to the fullest possible extent in every government-approved retirement program available to you. For a complete list of government-authorized retirement programs, including IRA and 401(k), log on to www.irs.gov/retirement-plans/ plan-sponsor/small-business-retirementplan- resources.

It would be difficult to overstate the importance of this principle. Never before in our country’s history has it been easier—or more important—to take control of your own retirement finances. Still, every one of these golden opportunities requires action from you to get the ball rolling.

When officials at Sears, Roebuck and Company announced their new pension plan back in 1918, many observers viewed it as a radical idea. Instead of the traditional formula where the company invested money on behalf of the workers and then paid the retirees a set amount in retirement—Sears had a new idea.

Their profit-sharing pension plan allowed both the company and the employee to contribute a fixed percentage of each employee’s wages into the employee’s individual retirement account. This was the first defined contribution retirement program. And only one company offered it.

Today, every business owner and every employee may choose from a variety of retirement programs authorized and monitored by the federal government. As with the Sears plan, though, nothing happens until the principal (you) takes action.

Before you can enjoy the benefits of a good retirement program, you must take the first step by signing up for it.

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax adviser for advice regarding your particular situation.


Bill Lynott is a management consultant, author, and lecturer who writes on business and financial topics for a number of publications. His book, Money: How to Make the Most of What You’ve Got, is available through any bookstore. You can reach him at wlynott@cs.com or through his website: www.blynott.com.