Jeanette A. Tucker | 6/24/2005 1:33:46 AM
Financial security in retirement doesn’t just happen, according to LSU AgCenter family economics specialist Dr. Jeanette Tucker. It takes planning, commitment and, of course, money.
The LSU AgCenter family economist says, "Unfortunately fewer than half of Americans have put aside money especially for retirement."
Tucker says preparation for retirement means facing up to reality and taking action for tomorrow, as well as for today. "Putting away money for retirement is like giving yourself a raise," she explains, noting, "Money saved for retirement gives you freedom when you want it - and deserve it. Of those who have 401(k) coverage available, however, one-third don’t participate."
The average American spends 18 years in retirement, and half of Americans simply guess when determining their retirement needs. "Don’t be one of them," Tucker says, advising, "Begin saving if you are not doing so. If you are a saver, ‘kick it up a notch’ and beat the retirement clock."
The U.S. Department of Labor recommends 10 ways to prepare for retirement.
1. Know your retirement needs. Retirement is expensive. Experts recommend that you’ll need about 70 percent of your pre-retirement income. If you’re a low-wage earner you will need 90 percent or more to maintain your standard of living when you stop working.
2. Find out about your Social Security benefits. Social Security pays the average retiree about 40 percent of pre-retirement earnings. Pay close attention to the free Personal Earnings and Benefit Estimate Statement (PEBES) mailed each year near your birthday. Check for errors and correct any that you may find.
3. Learn about your employer’s pension or profit sharing plan. If your employer offers a plan, check to see what your benefit is worth. Most employers will provide an individual benefit statement upon request. Learn what will happen to your pension if you were to change jobs. Check to see what benefits you may have from previous employment. Find out if you will be entitled to benefits from your spouse’s plan. Free booklets on private pensions can be obtained from the Department of Labor Web site at http://www.dol.gov/pwba/pubs/, or by calling 1-800-998-7542.
4. Contribute to a tax-sheltered savings plan. If your employer offers a tax-sheltered savings plan, such as a 401(k), sign up and contribute all you can. Your taxes will be lower, your company may kick in more and automatic deductions make it easy. Over time, deferral of taxes and compounding of interest make a big difference in the amount of money you will accumulate.
5. Ask your employer to start a plan. If your employer doesn’t offer a retirement plan, suggest that he/she start one. Certain employers can set up simplified plans. To obtain information on simplified employee plans, consult Internal Revenue Service Publication 590, available online at http://www.irs.gov.
6. Put money into an Individual Retirement Account. By putting money into an IRA, you can delay paying taxes on investment earnings until retirement age. Start young. Two thousand dollars invested in an IRA at 4 percent at age 30 can grow to $112,170 by age 60.
The 2001 tax law increased the maximum IRA limits to $3,000 for 2002-2004, $4,000 for 2005-2007 and $5,000 for 2008 and after. In addition, people age 50 and older can contribute an additional $500 catch-up amount from 2002-2005 and an additional $1,000 for 2006 and after.
7. Don’t touch your savings. Dipping into your retirement savings will cause you to lose principal, interest and perhaps tax benefits. If you change jobs, roll over your savings directly into an IRA or your new employer’s retirement plan.
8. Start now, set goals and stick to them. Start early. The sooner you start saving, the more time your money has to grow. Make retirement saving a top priority. Devise a plan, stick to it and set goals for yourself. Remember, it’s never too late to start. Start saving now, whatever your age.
9. Consider basic investment principles. The way you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your pension or savings plan is invested. Financial security and knowledge go hand in hand.
10. Ask questions. These tips should point you in the right direction, but you’ll need more information. Talk to your employer, your bank, your union or a financial adviser. Ask questions and make sure the answers make sense to you. Get practical advice and act now.
For local information and educational programs in related areas of family and consumer sciences, contact an extension agent in your parish LSU AgCenter office. In addition, refer to the Family and Consumer Sciences section under the Louisiana Cooperative Extension Service at the LSU AgCenter Web site: www.lsuagcenter.com