Newspaper Page Text
Many Americans need to save
more for comfortable retirement
By EILEEN AL'T POWELL
AP Business Writer
NEW YORK (AP) — It has long been
taken for granted that if you save 10 percent
of your income through your working life,
you'll have plenty of money for a comfortable
retirement.
Now experts are beginning to suggest more
is needed gcause iijl?altion gontirlifiis to nib
ble away at spending power, health care costs
have soared and todays workers are living
much longer than their ancestors.
The need to save more is not a my
most Americans want to hear — espzfifi;
since the nation’ savings rate has been nega
tive since the second quarter of 2005, mEn
ing that le are spending more than they
gg;n andp:iotfier di . intg their savings or
building up their dcbt. The most recent gov
ernment data shows the savings rate at a neg
ative 1.4 percent of personal income in May.
The 10 percent savings goal may still work
for a very small group — those who start put
ting money aside for retirement in their early
20s never waiver, said Dallas L. Salisbury,
chief executive officer of the nonprldg't
Employee Benefit Research Institute in
Washington, D.C.
“If somebody starts when they get their first
job and they save give or take 10 percent for
45 years ... then, by most any model, they will
have accumulated cnouflfomoncy so they
wont run out of money before they run out
of life,” he said.
But the reality, Salisbury says, is that most
people don't make s:vingmzor retirement a pri
ority when they're that young. Nor are tiiey
that diligent.
“The mantra has always been about start
ing to save early,” Salisbury said. “People don't
naturally flip that and say, “Wait a minute. If
that happens, doesn' it mean that if I start
late, I have to do a whole lot more to catch
up.” The reason is that someone who starts
saving later doesn't get full advantage of the
compounding of interest over time.
So someone who starts saving at 40 proba
bly needs to set aside more than 20 percent of
income, l:;hile kslo:;eonc who Start.;_ saving ;t
50 may be looking at 35 percent of more, he
g . rageously igh
ose may seem ou »
but Salisbury poi:lits out that many people
can expect to spend 20 or more years in retire
ment. Retirement calculators at the EBRl
nsored site www.choosetosave.org help
Bruce D. Harrington, vice president for
product development with MES Investment
Management of Boston, said another way a
worker can try to determine how much to
save is by projecting how much he or she will
likely spend in retirement.
There are two schools of thought on pro
jecting these so-called replacement ratios, he
said. One suggests people are likely to spend
in retirement the equivalent of about 70 per
cent to 80 percent of the income they earn in
their final fii/ee working years. The calculations
take into account not only Social Security
checks and pensions but also 401(k) retire
ment plan payouts and personal savings.
The other suggests people may need 100
percent or more — a goal Harrington believes
is more advisable.
“Life expectancies continue to rise, sc its no
joke that the average person could live 20 or
30 years in retirement or more,” Harrington
said. ‘
He adds that today's retirement is different
from yesterday’s because “a lot of people are
going to travel in retirement, buy that vaca
tion home, do things they hadnt been able to
do before.”
Harrington suggested workers should set
up an age-appropriate savings plan.
Workers in their 20s or 30s, for example,
might consider opening an Individual
Retirement Account. Workers can put up to
$4,000 a year of pretax money into tEeee
accounts, and their savings grow tax-deferred
until they're withdrawn in retirement.
Those whose employers sponsor defined
contribution retirement plans, like 401(k) or
403(b) accounts, can start by purtting in 3
percent to 4 percent of their salary and step
ping up the savings pace every six months or
12 months, he said.
Workers in their 40s need to take a hard
look ar projected retirement spending needs
using retirement calculators such c:ismt%xose at
MES Investment Management's site,
www.mfs.com, or the sitesl:;/igotdier fund and
investment companies.
“You're better off at 40 figuring it out and
developing a plan than waiting until its too
late to catch up,” he said.
T b e ke et T
sav e ey
have a lot less tirriig:o‘t makcflulgethe shortfall,”
Harringron said.
Aside from saving extreme ively,
this group has m some lifestyle changes
that may include working longer, downsizing
retirement, he said.
AUGUSTA FOCUS
b B
. . L.
. e 000 :
Constance L. Woods
Financial Planning Specialist
Financial Consultant :
Investment Management Specialist
Retirement Plan Consuitant
One Tenth Street, Suite 600
Augusta Ga. 30901
(706) 823-8144
www.fc. smithbarney.com/woods .
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