Retirement: Financial Decisions that Make the Difference
In order to live the retirement of your dreams, you must first make the financial decisions that can support them. Most financial experts say you need at least 75 percent of your pre-retirement income to live comfortably in retirement. This assumes that you do not have any debt obligations - the big three being mortgage, credit card and vehicle loans. By eliminating debt in your retirement, you will only have to pay for essentials and the money you would have used to pay toward debt, can be used for nonessential items that make retirement so rewarding - like travel.
If your financial decisions for retirement include debt obligations, then you must plan to have the needed retirement income to cover these additional expenses. Instead of the recommended minimum of 75 percent of your pre-retirement income to live comfortably in retirement, you will need 100 percent. Want to travel extensively too? Well, then you will need 110 to 120 percent of your pre-retirement income to make this a reality.
Are you among the millions of Americans planning to use Social Security as their only retirement income vehicle? Then, you are in for a rude awakening. The Social Security Agency states that, "Under current law, if you have average earnings, your Social Security retirement benefits will replace only about 40 percent, so you'll need to supplement your benefits with a pension, savings or investments." This assumes of course that Social Security is secure.
You say you do not plan to rely on Social Security for your retirement? You have a pension plan. You are, no doubt, one of the lucky Americans. But, before you do your victory dance, consider this. The Pension Benefit Guaranty Corporation (PBGC) is a federal corporation created under the Employee Retirement Income Security Act. Basic pension benefits earned by 44 million American workers and retirees participating in over 31,000 private-sector defined benefit pension plans are guaranteed by the PBGC. The Executive Director of the PBGC, Bradley D. Belt, testified on June 7, 2005, before the Committee on Finance of the United States Senate, regarding the urgent need for comprehensive pension reform. Mr. Belt testified "...the amount of underfunding reported by the 4010 filers grew by 27 percent as compared to a year ago... for an average funded ratio of 69 percent." 4010 filers represent only a portion of the pension plans covered by the PBGC. Only companies with pension plans underfunded by more than $50 million are required to file 4010 reports.
In order to have your financials aligned to be financially independent in retirement - which means you will not rely on a pension, Social Security or other government assistance - then you need to act now.
These Chinese proverbs may just provide the inspiration you need:
"A good debt is not as good as no debt."
"Free from debt is free from care."
"One who restrains his appetites avoids debt."
Use the Retirement Calculator to create your retirement income plan. Using the retirement calculator, you can view your retirement savings balance and plan your withdrawals for each year until the end of your retirement. The results of your input assumptions are revealed instantly.
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