Financial planning for retirement
Staying flexible for future changes

By Julie Asher
CATHOLIC NEWS SERVICE

Financial planning for your retirement means the difference between enjoying one’s golden years and having to scrape by.

When it comes to planning, prospective retirees must prepare for an extended life span, the effects of inflation, future taxes and health costs and changes in life circumstances.

But many Americans really don’t want to think about their retirement, said Louise Piazza, a senior program specialist on economic security with the American Association of Retired Persons in Washington.

“We say that people spend more time planning for a two-week vacation than they spend planning for their retirement,” she said. “People tend to think they are about 10-15 years younger than they are. Baby boomers, in particular, do not want to think of themselves as retiring. To confront those issues of retirement is to say I’m getting older.”

The idea of “getting a handle on your money” can be so overwhelming that many people “just don’t do anything,” she said, but “it’s never too late to start planning.”

First, to figure out how much you need to put away through savings, investments and pension funds or to determine if the money you’ve already socked away is going to be adequate, you need to think about the lifestyle you want for retirement and calculate what that will cost.

For example, deciding whether you want to be near a golf course in North Carolina or you would be content to have a condo in the town where you live now will “drive how much money you’ll need,” Piazza said.

Remember, your future will cost more. Inflation will make what you save today buy less tomorrow as prices for goods and services continue to increase.

Inflation through most of the century has averaged 3 to 4 percent a year, but it has been as high as 12 percent, said Piazza. In 1990, a pound of regular coffee cost $2.97, the average car was $15,900, and a basic home was $122,900. In 2010, the same pound of coffee will cost $6.50, the car will be $34,840 and the typical home will go for $269,300.

Piazza also stressed that longevity also must figure into your planning. People are already living far longer than their predecessors, so you may need to stretch your money out over 25, 30, 35 years.

A tool called “Ballpark Estimate” will help you calculate what you are going to need to live the way you want in retirement. It’s available from the American Savings Education Council (www.asec.org).

It’s a step-by-step work sheet that asks you what annual income you will want in retirement, what income you expect to receive from Social Security, employer pension, part-time income and other income sources, and what your savings total to date. The council also offers a “retirement readiness” quiz.

Piazza said there are four main sources of money in retirement: Social Security, pensions (either a 401K or a defined benefit plan), personal savings and investments, and work.

“Within five to 10 years of retiring you should have a pretty good idea of what your monthly income is going to be from Social Security and pension (funds),” she added.

Currently Social Security pays the average retiree 40 percent of his or her pre-retirement earnings, but over time that may fall to 20 percent, Piazza noted. To find out about your Social Security benefits will be, call the federal agency at (800) 772-1213 for a free statement.

Your employer should be able to provide you with figures on what you can expect to get from your pension. If you have a 401K, Piazza noted, “you decide what to invest in, stocks, bonds, whatever, so you really have responsibility for how that is allocated.”

Beyond investments in the stock market, people also need to have savings, she added. While much of the news these days about this nation’s low rate of savings may make the situation seem more dire than it is, Americans clearly are spending more than they should, she added.

Another factor to consider in planning is that your needs during retirement will change. “Plan not only for that period after you retire when you’re going to be in pretty good shape,” Piazza said, but also for the possibility “you’re going to be in a nursing home or assisted living.”

Vashishta Bhaskar, a professor of finance at the Catholic-run Duquesne University in Pittsburgh, offered these tips for getting started on a financial plan:

• Make a good estimate of your net worth and do this annually as you move toward retirement.
• Get more conservative in your investments.
• Concentrate on estate planning and tax planning.
• Look at your overall insurance situation, including life, health, disability and long-term care, which “becomes more vital as you get older.”
• Start to slowly move about 10 percent of your funds each year from your stock market portfolio to more conservative investments, in fixed income funds.

Another major consideration, both Piazza and Bhaskar advised, is to make out a will and keep updating as your circumstances change, such as moving to a new location or getting a new grandchild.