By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, email@example.com
The Military Families Learning Network will host Retirement Ready? Effective Strategies for Military Families webinar on November 1. This 90-minute webinar will Include a segment about personal finances and how people at different stages of the life cycle view retirement planning.
As described in a presentation by Professor William Klinger of Raritan Valley (NJ) Community College to the New Jersey Coalition for Financial Education, these generational reactions can be summarized as follows:
- Age 20-35– What, me, worry? I’ve got plenty of time.
- Age 35-55– Too many expenses. I’ll save later versus now.
- Age 55-70- Yikes! I have no savings. It’s catch-up time.
- Age 70+- How can I make my retirement savings last?
At age 20-35, the key thing to remember is that time is on your side. For example, college students graduating at age 22 have 45 years of compound interest on their savings before they’re eligible for full Social Security benefits at age 67. In addition to saving early, it is also important to keep spending in check so that savings can get an early start. Some young adults, unfortunately, procrastinate by thinking “I’ll start saving later when I pay off student loans” or “I’ll save when I make more money.”
In the “middle years,” age 35 to 55, emphasis should be on continued savings, especially in tax-deferred retirement savings accounts such as 401(k) and 403(b) plans. Be sure to take full advantage of the maximum available employer matching, such as 6% of your pay if you invest 6%, and track your annual progress by preparing a net worth statement that takes a “snapshot” of your current assets and debts.
In later adulthood, age 55 to 70, people are (hopefully!) empty nesters and can accelerate their savings even further. According to research by Fidelity investments, people should have 5 times their salary saved at age 55, 6 times at age 60, 7 times at age 65, and 8 times at age 67 to be considered “on track” for a comfortable retirement. Unfortunately, the 2016 Retirement Confidence Survey by the Employee Benefit Research Institute indicates that only 14% of workers have more than $250,000 saved for retirement and 54% have less than $25,000 in savings, including 26% that have less than 1,000.
A primary retirement planning concern of people age 70+ is having their savings last throughout their lifetime. High health care and long-term care costs in later life are also major concerns. A body of research suggests that initially withdrawing 4% of savings (whatever the dollar amount) and increasing it annually for inflation has about an 85% success rate (i.e., chance of not running out of money) over a 30-year period based on past investment performance data. New research findings with “floor and ceiling” withdrawal strategies and “decision rules” (e.g., freezing income during periods of negative investment returns) have been shown to increase success rates even further.
To summarize, retirement planning is important throughout adult life and can span a period lasting seven, or even eight, decades. Key messages for people of all generations are as follows:
- Start saving for retirement as early in life as possible. If it’s too late for you to get an early start, save as much as you can today and encourage your children and/or grandchildren to start saving early.
- Increase savings as income rises and/or expenses (e.g., child care) and/or debts (e.g., student loans) are reduced or end.
- Develop an adequate savings nest egg and a strategy for sustainable retirement savings withdrawals in later life. To plan your retirement savings, use the Ballpark Estimate; http://www.choosetosave.org/ballpark/.
- Enjoy the fruits of your labor in retirement and the journey of life along the way.
Register today to join the November 1 webinar Retirement Ready? Strategies for Military Families. CEUs for accredited financial counselors, certified personal finance counselors, marriage and family counselors, social workers and counselors are available.