The Issues of Funding Retirement, Early or Not

Everyone at some time in their working lives wishes they were retired and did not have to get up on Monday morning for the week ahead. It may be after a particularly bad week and often it is only a temporary mood but there is little doubt that many would retire early if they could afford to do so. Affordability is a key and with life expectancy increasing the amount of money you will typically need in order to retire is going up all the time.

A report by the Transamerica Center for Retirement Studies published details of the responses they got from 2,000 Americans who has already retired. Some were still in their 50s or early 60s short of the official retirement age. Most of those had clearly retired before they expected to as a result of different factors:

• Health issues
• Job loss
• Responsibility of caring for loved ones

The important thing for everyone retiring is to have the savings in place to fund a comfortable retirement which may be for 20 years or more. The only way to be able to live comfortably is to save and invest because the Social Security System provides benefits that could not remotely provide it.

 Interesting Figures

Here are examples of the fund that you would accumulate if you put aside $4,000, $5,000 or $6,000 a year towards retirement and received an average 8% growth. If you did that 10 years before retirement you would have $62,500, $78,000 or $94,000 respectively. However if you had managed to do that for 20 years, the figures look much better: $197,500, $247,000 and $296,500. You can immediately see the power of compound interest when it is given time to work for you. You have actually put $72,000 away to achieve that $296,500!

There are annuities that guarantee a fixed income per year and that $296,000 would probably provide an annual income of $22,000 a year which added to Social Security benefits would mean a figure in the mid-30,000s which is an acceptable annual income in which to live your retirement years. Those who have enough to delay taking any Social Security benefits until they are 70 will get around 30% more than they would get at 66 or 67, and not far short of double the benefit someone who is forced to claim at 62.

 Lack of Saving

Of more immediate concern are the numbers of working people today that have not even got a few thousand dollars of retirement savings in total. They are unlikely to be able to buy any significant annuity if they are already in middle age unless they act immediately. It is difficult to suddenly change current behavior but it must be done. If you are spending all you earn this month without making savings you are frankly in trouble.

Next time you open your credit card statement look at the total balance outstanding not the minimum payment the credit card company requires. You may not be happy with what you see if you are among the host of people that make up an average household card debt of over $15,000. The interest you are paying on such a balance is a sheer waste and you will continue to waste money until the whole debt is settled. You won’t do that by making minimum payments. It would take you many years. You should look instead at finding a cheaper way to handle the debt. An online personal loan is a solution if you have the income to justify it; in other words it appears to quick lenders that you can afford the proposed monthly installments for the full term of the loan. If you make that payment and only use cards in the future if you can pay the bill in full at the month end you have taken a giant step.

You must follow up with a disciplined budget and stick to it. At least you will be on the right track towards normal retirement because you will have cut out any waste. Whether you have done sufficient to provide for a comfortable retirement will be questionable if you are already into your 50s but if you do nothing at all you will certainly not have done.

(Guest Post)