Worried About Your Retirement? Advice from a Financial Planner
Perhaps these past few years of economic ups and downs have made you as nervous as they have me. The New York Times recently published an interactive debt-to-savings chart which allows users to see how U.S. savings have declined and debt has increased since the 1920s (click on Series Index and scroll to The American Way of Debt, then launch interactive).
Photo by the tamed shrew.
If you weren't nervous before, you may be after you see it: The average household savings in 2008 is $392, while the average debt is $117,951 and the average American household has 13 credit cards. Nevertheless, many are taking steps to reverse the low savings-high debt trend. The AARP Bulletin offers a few suggestions on how to think ahead for retirement while improving your financial condition today.
AARP's retirement expert recommends thinking of your finances as "a five-legged stool: Social Security (it will be there for our generation), personal savings, freedom from debt, health insurance (for retirees under 65) and realistic work goals." Other recommendations?
- First, get out of consumer debt, stop borrowing against the value of your home and consider selling for something smaller if it looks like you'll retire with a mortgage, control your spending and use extra cash to pay down debt, and help your children only as a last resort.
- Medical care without health insurance means debt. Try to maintain your employment or otherwise have health insurance until you are 65 and qualify for Medicare. If you have to purchase individual policies, you'll likely have a high deductible but if you maintain your health by exercising, not smoking, and maintaining low weight, you may be able to avoid the expense until Medicare kicks in.
- If you are single, you should avoid taking your Social Security benefit as long as possible. Although eligible at 62, for each year you wait (until age 70) you increase your monthly check by eight percent. If married and one spouse retires before the other, the early retiree should take individual benefits until his or her spouse retires and then switch to spousal benefits.
- You should plan for retirement savings: "By the time you reach the end of your working life, you should be saving 15 percent or more of your gross income, in addition to anything your employer contributes to your 401(k) or similar plan." In addition, savers should set aside the maximum amount their state allows, check into IRAs if you don't have a company plan, and spend no more than four percent of your savings per year (with inflation adjustments) once retired.
- Consider working or starting a new business to fill any financial gaps.
For more information about downsizing your home or other planning ideas,
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