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The Retirement Marathon
Planning your financial future is planning for retirement
- and having money to enjoy it.
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In 1900, retirement wasn't a hot topic. Most employers didn't offer
pensions, there was no Social Security, and the average
life expectancy was about 50.
But more than a century later, everything's changed. More than a million people
retire every year and most can expect to live 20 years or more. In fact, current
estimates suggest that a million or more people now in their 40s will live to be
100 or older.
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IN YOUR 20s: GETTING STARTED
You can get a head start on building your financial future if you
start early. The two opportunities you don't want to pass up:
- Contributing to a
tax-deferred or tax-exempt
retirement savings plan, either at work or with an IRA - or both
- Setting up an investment account with an insurance company,
mutual fund, brokerage firm, or bank
While you may be paying off college debts or struggling to meet
living expenses, the advantages of getting an early start on a long-term investment
plan are too good to pass up.
Ideally, you should be investing up to 10% of your pretax income. If you're in an
employer-sponsored retirement plan that deducts your contribution from your salary
on a pre-tax basis, your taxable income will be reduced. That means current tax
savings - a reward for doing the right thing.
Though some of what you've put aside should be
liquid, or easy to turn into cash without loss of value, the best investments
may be equities
or equity-based
separate accounts. The potential growth they can provide over the
long term has historically justified the risk of possible losses in the short term.
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IN YOUR 30s & 40s: HITTING YOUR STRIDE
Even while you're juggling your income to pay for things that might
seem more pressing, like buying a home, supporting a family, or anticipating your
children's college expenses, you need to build your long-term investments.
One technique is to split the amount you invest between long- and short-term goals.
Even if you put less into long-term plans than you'd like, at least these investments
have the potential to grow, especially if you're building on a portfolio you started
in your 20s.
Most experts agree that long-term investments should be in equities or equity-based
separate accounts, but short-term investments should be more liquid. Keep in mind
that investing for the long term is good for your current financial situation too:
- You save on current taxes by participating in a pre-tax
salary reduction
plan
- You may qualify for a
mortgage more easily if you have investment
assets
- You can borrow from some retirement plans without incurring taxes
and penalties
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IN YOUR 50s: THE FAR TURN
You may be earning more than before, but you may be spending more
too. College expenses can wreak havoc on long-term investment goals. So can expensive
hobbies or moving to a bigger house.
On the other hand, if you've established good investing habits - like participating
in a pre-tax salary reduction plan and putting money into a balance of equity and
fixed-income
investments - your long-term goals are more likely to be on track.
You may also find that the demands on your current income eventually begin to decrease:
The mortgage gets paid off, the children eventually grow up, or you inherit assets
from your parents.
That means you can begin to put more money into your long-term portfolio - through
your employer's pre-tax salary reduction plan, in an IRA, and with taxable accounts.
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IN YOUR 60s: THE HOME STRETCH
When you start thinking seriously about retirement, you want to
be sure you'll have enough income to live comfortably. If you have money coming
in from a pension and investments, you'll have more flexibility to retire when you
want.
Because many people can expect to live 20 or 30 years after they retire, you'll
want to continue to invest even as you begin collecting on your retirement plans.
One approach is to deposit earnings on certain investments into an account earmarked
to make new ones. Another is to time the maturity dates of
bonds or other fixed-income assets so that you have capital
to reinvest if good opportunities come along.
Some of the other financial decisions you'll be facing may be dictated by government
rules about when and what you must withdraw from your retirement accounts. Others
may be driven by your concerns about healthcare or your desire to leave money to
your heirs. At the least, you'll have to consider:
- Shifting investments to produce more income with fewer risks,
in case of a downturn in the financial markets
- Rolling over retirement payouts to preserve their tax-deferred
status
- Finding ways to reduce estate taxes and provide money to
pay for those that are unavoidable
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WHAT THE FUTURE HOLDS
The truth is that retirement age is relative, not fixed. Many government
workers retire after 20 years of service - sometimes as soon as their early 40s.
Some people work productively through their 80s, thinking of retirement as something
other people do. Many others retire the first day they're eligible. Still others
leave work unwillingly, taking early retirement packages they can't refuse.
What you do about retirement may fit one of those patterns, or maybe one you design
for yourself. But whether retirement is a long way off, or sneaking up on you faster
than you care to imagine, planning for your financial future has three main ingredients:
- Financial security
- Adequate healthcare
- Lifestyle choices
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Glossary
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Interactive Demos
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Our Products
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 Try our interactive demo
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