2 do's and 8 don'ts for boomers planning retirement
There's still time, though less of it, even in your 50s
By Gary Foreman
The New Frugal You
Dear New Frugal You,
I'm a baby boomer and concerned about retirement. I thought I could depend on my house and 401(k) to supplement Social Security, but after the past four years I'm not so sure. I'm only 50, so I probably can recover. Can you help me get to a comfortable retirement? -- Robert
right to be concerned about your retirement. It's very likely that the rules
for retirement will be rewritten in the next 10 years. The concept that
everyone retires in their mid-60s and never works again is obsolete.
Recognizing that now and making adjustments could make a big difference in your
widely agreed that the Social Security trust fund is running out of money. If
the current funding and payout system stays the same, Social Security's reserves will be
exhausted in 2033, according to the Social Security Administration. After that, taxes will only
support about 75 percent of scheduled benefits.
unless taxes are raised on younger workers, your benefits will be cut. That
means a greater reliance on what you've managed to accumulate in private
pension plans, 401(k)s, IRAs and equity in your home.
no one single thing that you can do to guarantee a comfortable retirement. But
there are a number of lifestyle choices and decisions that you can make that
will make a big difference in building a retirement nest egg.
Do remember that $1 today will be
worth more at retirement. Every dollar you save now will benefit from the
multiplier effect of compound interest. Depending on how soon you need it, that
dollar could be multiplied two, four or even eight times.
Don't let pride of ownership lure you into buying overly expensive
autos or trading up too frequently. The salesperson always wants to put you
into a new ride. Don't listen. Better to buy a vehicle with lower status and
keep it until repairs exceed the value of the car.
Don't let your children's or grandchildren's college deplete your
retirement savings. Yes, you rightfully believe in education and want your
offspring to have the greatest range of life choices. But, by not helping them
pay for an overly expensive school you're doing them a favor. You're forcing
them to consider both the cost and benefit of their degree choice. They're less
likely to choose an unmarketable major. A bad major could haunt them for years.
Don't let "living large" today cause you
to live very small later. We're awash in premium products. Everything from our
breakfast cereal to the home we live in. And luxury products are much more
expensive than the more typical choices. All those premium choices add up and deplete your savings, too.
Don't enable others in their financial bad behavior. We all want to help
friends and neighbors who have been hurt by the recession. And we should help
when we can. But, if we're giving or lending money to someone who's not making
an effort to bring their expenses in line with income, we're just delaying the
inevitable. Sooner or later they'll run out of money, both theirs and ours.
Don't overreach trying to make up for recent losses. Your home may have
lost 30 percent of its market value in the recession. It will take decades
before you see those prices again. Don't try to try to adjust your investments
to make that up quickly. You'll be taking on unnecessary risk. You're still
young enough to invest for the long haul.
Don't panic over changes in your retirement portfolio. Markets will
move up and down. After taking some losses it's tempting to pull everything
out. Don't do it. Barring bad fortune, you can expect to live into your 80s. That
leaves plenty of time for a balanced portfolio to recover losses.
Don't underestimate your target. One rough tool used by planners is
that you can safely take 5 percent of your savings each year. So for every
$10,000 in income you want, you'll need to save $200,000.
Don't assume a traditional retirement. Begin to consider what your
retirement might look like. Many boomers are choosing to continue to work
part-time or to start an entirely different career. In some cases they're
beginning to lay the foundation now. There will be more options available for
boomers as they get into their 60s.
Do take a look at your lifestyle and behaviors to see what might be
keeping you from preparing for a comfortable retirement. Saving for retirement
isn't an impossible challenge, even if you've taken a hit in the most recent recession.
The trick is to remember that it's not a sprint. It's a marathon. Make a little
progress every month and you'll cover a lot of ground in 10 or more years!
See related: Help! My savings don't match my retirement goals, Retirement in sight? Balance your risk tolerance, need for growth
For more than 35 years, Gary Foreman has worked to help people get the most for their money. Prior to founding The Dollar Stretcher.com, he was a financial planner and purchasing manager. Gary began The Dollar Stretcher website and newsletters in April 1996. Today the website features more than 6,000 articles on different ways to live better for less. Gary has been interviewed by The Wall Street Journal, The Nightly Business Report, USA Today, Reader's Digest and other newspapers and magazines. Gary answers a question about a budgeting or saving issue from a CreditCards.com reader each week.
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Updated: March 14, 2013