Retirement Planning; You, Me and the Department of Labor

You, Me and the Labor Department's Top 10 Ways To Prepare For Retirement

Financial security in retirement doesn’t just happen. It takes planning and commitment and, yes, money. Facts Fewer than half of Americans have calculated how much they need to save for retirement. In 2009, 13 percent of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate. The average American spends 20 years in retirement. Putting money away for retirement is a habit we can all live with. Remember… Saving Matters! If you are already retired, this is an important message for your children.  Susan's comment: I was happy to see my son give my four-year-old daughter a piggy bank. He got it free from his local bank and now that can start saving, together. Sometimes you don't always make the points that you want to make with your children, like when you are trying to give them financial advice, but other times (in moments like this), you do have an impact. So just keep trying. Like many retirees, I am very concerned about what will happen to our children and grandchildren, in face of the economic disaster we have been through and continue to go into.  1. Start saving, keep saving, and stick to your goals If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow (see the chart below). Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving. Susan: Fred and I opened a savings account last month. We are saving for our REAL retirement (don't worry, we will keep working) that we're planning for in September. We are saving for new computers, air tickets and some other needs for a trip to South America. We do not want to dig into retirement savings, and we still have the ability to earn income -- so we are doing it, and saving what we make.  2. Know your retirement needs Retirement is expensive. Experts estimate that you will need about 70 percent of your preretirement income – lower earners, 90 percent or more – to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead. Start by requesting Savings Fitness: A Guide to Your Financial Future and, for those near retirement, Taking the Mystery Out of Retirement Planning. Susan: So sayeth the government, but retirement does not have to be expensive. We paid off our house, cars and loans. The only monthly payments will be have to make, other than living expenses, amount to $350 -- and within a year, that will decrease do $100. We are downsizing, not buying "stuff" and eating healthy (and not as much as before). We are getting rid of our car and will be using public transportation and will live in a city where it is easy to get around. We are discovering walking! We have cut down on energy usage. All of this is fun and makes us feel like we are doing our duty, as well. We do not have to be energy and food gluttons, any more.

3. Contribute to your employer’s retirement savings plan

If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your plan. For example, how much would you need to contribute to get the full employer contribution and how long would you need to stay in the plan to get that money.

Susan: This paid off, especially in Fred's last job. We learned it is never too late.

4. Learn about your employer's pension plan

If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse’s plan. For more information, request What You Should Know about Your Retirement Plan. (See below for more information.)

5. Consider basic investment principles

How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan’s investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.

6. Don't touch your retirement savings

If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer’s plan. 7. Ask your employer to start a plan If your employer doesn’t offer a retirement plan, suggest that it start one. There are a number of retirement saving plan options available. Your employer may be able to set up a simplified plan that can help both you and your employer. For more information, request a copy of Choosing a Retirement Solution for Your Small Business. 8. Put money into an Individual Retirement Account You can put up to $5,000 a year into an Individual Retirement Account (IRA); you can contribute even more if you are 50 or older. You can also start with much less. IRAs also provide tax advantages. When you open an IRA, you have two options – a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA. 9. Find out about your Social Security benefits

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Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You should receive a Social Security Statement each year that gives you an estimate of how much your benefit will be and when you can receive it. For more information, visit the Social Security Administration’s Web site or call 1.800.772.1213.

Susan: I have found the Social Security people to be nice, competent, helpful. They always answer our questions and help us in every way imaginable. Get to know them -- and be polite. Cranky old farts are no fun to work with, so don't be one.

10. Ask Questions

While these tips are meant to point you in the right direction, you’ll need more information. Read our publications listed below. Talk to your employer, your bank, your union, or a financial adviser. Ask questions and make sure you understand the answers. Get practical advice and act now.

To find out more, call the Employee Benefits Security Administration at 1.866.444.3272 and request the following brochures:

• Savings Fitness: A Guide to Your Money and Your Financial Future
• Taking The Mystery Out Of Retirement Planning
• What You Should Know About Your Retirement Plan
• Filing a Claim for Your Retirement Benefits
• Women and Retirement Savings
• Choosing a Retirement Solution for Your Small Business

The following Web sites can also be helpful: AARP American Savings Education Council Certified Financial Planner Board of Standards Consumer Federation of America The Investor’s Clearinghouse U.S. Securities and Exchange Commission