Retirement News : Seniors : Fears about retirement spur savings, investing

Fears about retirement spur savings, investing

Date Added: 01-06-2005

NEW YORK -- For Robert Smith, the "Aha!" moment came as he was watching TV recently. A caller to "The Suze Orman Show" laid bare her financial life, and Smith, a 31-year-old 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 one-time hourly worker turned entrepreneur knew little about investing. Now he hopes careful long-term planning will help him retire a multimillionaire.

Studies that show only modest improvement in our retirement saving and investing habits suggest Smith's newfound determination is unusual, but there are signs we're making progress. With Social Security reform, 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."

For baby boomers between 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 those funds other than by 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 but still 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 work force 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 investments.

Most people still are only setting aside between 6 percent and 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.

"We are saving roughly half of what we need, and we're spending twice as much as we can afford as retail consumers," Houston said. "If we don't shift the dollars being used for immediate gratification to long-term savings, we are not going to be in a position to make a lot of choices about the quality of our lives at age 65 and beyond."

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