Retirement

"That which we persist in doing becomes easier - not that the
nature of the task has changed, but our ability has increased."

Ralph Waldo Emerson

Retirement is becoming a very critical issue in the US. As the first wave of "Baby Boomers" begin to retire in the next 10-12 years the financial system will be very strained because many have not adequately prepared for retirement.

As many know about 20± years ago industry (businesses) began shifting from a defined "pension" plan approach to a "retirement" plan (e.g. 401K) approach. What this effectively did was shift responsibility for your retirement from the company to YOU. Most companies will provide good information and will even "match" a certain percentage of your contributions. However, it is your responsibility to prepare financially for retirement.

What happens if you retire without adequate savings or income generating assets? No one knows right now but many believe that it will be mostly your responsibility. Why do you think so many Seniors are working at Wal-Mart^®, or McDonalds^® these days? I imagine most would rather be traveling with friends around the country or world.

Also, many people do not realize just how much money it will take to retire comfortably. Many are not saving at all (remember the Poor-Minded Thinking mentioned earlier).

Just a few striking points:

	If you (or parents) are admitted to a nursing home it will cost about $46,000 per year
	Estimated that it will cost $750,000 in average health costs if one retires at 65 and lives a normal life span
	Remember if you have a 401K or IRA these accounts are "Tax Deferred" only. This means that when you start withdrawals they will be taxed at you current retirement tax rate.
	Remember you will still have to live somewhere, current home etc.

Below are just a few examples of how much money will be required to retire and maintain a certain level of income.

Example:

Assumptions:

	Current income $50,000 per year.
	Would like to maintain above income after retirement (adjusted for inflation).
	Retire at age 65
	Inflation at 3% per year
	Investment growth at 10% per year
	At retirement live on interest, dividends and not principle of investment
	Ex. $50K today with 3% inflation would be equal to $141K in 35 years

Income Required In Future Years To Maintain The Equivalent Of $50,000 per year And Maintain For Certain Number Of Years After Retirement
Current Age (years) ↓	Years Until Retirement →	15 Yr.	25 Yr.	35 Yr.	Years After Retirement →	10 Yr.	20 Yr.	30 Yr.
30	$50K (income)			$141K		$189K	$255K	$342K
40			$105K			$141K	$190K	$255K
50		$78K				$105K	$141K	$189K

While this may seem a bit complicated, this basically means that if you are 40 years old now and make $50,000 per year income you will need to make $105,000 per year in 25 years when you retire. Also, if you live for and additional 20 years you will need an income of $190,000 per year in 20 years to be equal to your current $50,000 per year income.

If you are confused and your eyes are glazing over because this seems complicated you really need to increase your financial knowledge and meet with a financial planner. Ignoring this will not make it go away.

Now that you know how much money you will need during retirement to maintain a certain lifestyle, how much will you have to save (if all of it comes from savings) to accomplish this.

Assumptions:

	Live on interest and not use principle
	Receive 10% interest on savings/investments (this may seem high but assume this is the increase in value not just an interest rate you would receive from a bank CD for instance)

$ Savings ↓	at 10% growth	Annual $ Income ↓
$1,000,000		$100,000
$2,000,000		$200,000
$3,000,000		$300,000
$4,000,000		$400,000

I hope this is not to scary.

This shows that you will need about $2 Million in savings if you are currently 40 years old and live for 20 years after retirement.

Now how much would you have to save each year to obtain the amounts listed above.

Annual Savings Required To Obtain $2,000,000 In Savings
Current Age (years) ↓	Years Until Retirement →	15 Yr.	25 Yr.	35 Yr.
30				$7K
40			$20K
50		$63K

As you can see one should start saving early to take advantage of compounding interest.

These examples assume using just savings. However, if you have several Income Generating Assets (IGA) the amount of savings may be adjusted accordingly. Also, if you need more money one can just increase the income from your existing IGAs or develop additional IGAs. It may sound simple, and it is.

Copyright © 1997-2009 Crown Group, LLC