Retirement News : Seniors : Taking steps for a better retirement

Taking steps for a better retirement

Date Added: 31-05-2005

For Robert Smith, the "aha!" moment came about a month ago as he was watching TV. A caller to the Suze Orman show laid bare her financial life, and Smith, 31, a father of four with few investments and no long-term plan, saw himself.

"She was my same age - I guess that's what got my attention," recalled Smith, who runs his own marketing business in Rockford, Ill. "She [Orman] said the first thing this lady needed to do was sit down with a fee-based financial planner. So that's what I did."
 
Smith and his wife had an emergency fund, but the onetime hourly worker-turned-entrepreneur knew little about investing. Now he hopes careful long-term planning will help him retire a multimillionaire.

"I want to be well past the point where I need to rely on something like Social Security," Smith said. "I realize the road to wealth is one where you just have to keep chugging along. Time is on my side."

Studies showing only modest improvement in our retirement saving and investing habits suggest that Smith's determination is unusual, but there are some signs we're making progress. With Social Security reform, long-term health care coverage and troubled employee pension plans making headlines, it seems epiphanies like his are happening more often.

"They're realizing they have to do something," said Bill Driscoll, a financial planner in Plymouth, Mass. "All the talk about Social Security going bankrupt and private accounts has everybody nervous." Driscoll doubts the government will allow Social Security to disappear entirely, but he's advising his clients to do all they can to avoid having to rely on it. The baby boomers he advises are often struggling to save more, while younger clients are convinced they'll have to fend for themselves in their old age.

Gina Marie Hanlon, 35, a chiropractor, sought Driscoll's advice about two years ago, shortly after she opened her own practice. Now expecting a child, she and her husband, a highway safety foreman, are saving for retirement as they juggle the needs of her growing business with the demands of eye-popping student loans.

Not planning ahead is not an option, she said.

For baby boomers between ages 45 and 55, saving enough to cover a potential shortfall is a challenge. If the system pays substantially less than promised, they may have no way to replace the missing funds other than working longer.

"No matter how much money you think you have coming in, you can't really count on anything, and inflation is still a big part of the picture," said Chris Neri, 54, a real estate agent who opened an IRA 30 years ago and plans to work as long as he can.

A recent survey by the Principal Financial Group, a top administrator of employer-sponsored retirement plans, asked workers how they would manage in retirement without Social Security.

Sixty-eight percent said they would either remain in the workforce longer or ease into retirement by working part-time. The vast majority of those surveyed, 89 percent, are aware of legislative proposals to reform Social Security with private retirement accounts, but 49 percent said they wouldn't be comfortable managing their own investment.

Despite how well-publicized the issues are, most people are setting aside only 6 percent to 7 percent of their income in tax-deferred retirement accounts, said Dan Houston, senior vice president of retirement and investor services at Principal. Planners say a savings rate of 10 percent to 15 percent over several decades is necessary for workers to maintain their quality of life in retirement.

Those who think they can catch up later by working longer may be in for a rude surprise, too, Houston said. Workers usually retire sooner, not later, than they thought because of job loss or medical issues, he said.

"You should plan to stop working around age 57. And if you decide you want to work a day past 57, afford yourself a luxury of making it a decision," he said.

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