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Money: Planning Early Retirement

The purpose of retirement planning is to create an investment program that will maintain and exceed your current lifestyle during retirement. Unfortunately, many retirees find that their pension and Social Security benefits come up short in providing them with the necessary income to continue the way of life to which they have become accustomed. Consider these alarming statistics: According to U.S. Social Security Administration data, 27 percent of all Americans over 65 live on an annual income below $10,000, near the poverty line; the same statistics show that a mere 7 percent of retirees have incomes of more than $50,000. What will be your sources of retirement income? How much money will you need to sustain your desired lifestyle? How much can you depend on Social Security?

Socially secure?

The question of whether Social Security will even be around when many of us hit retirement age should not be taken lightly. Better health care and longer life spans have resulted in an increasing number of people drawing Social Security benefits. It is imperative to take a proactive role in planning your retirement, instead of waiting for your financial future to be decided for you. To live comfortably after you retire, you must be realistic about how much you will need to pay the bills. The general rule of thumb is you will need about 80 percent of your current income each year. And while such expenses as your mortgage, children's education costs and day-to-day expenses like gas, restaurant meals and work attire may decrease after retirement, the following costs typically rise: Utility bills, since you are home more; medical expenses, including the costs of insurance; and property taxes, which typically rise over time. It is important to discuss with a retirement planner your investment options. If you are middle-aged and plan to retire early, your investment plan will be more aggressive than someone in their 20s looking to retire at 65. Depending on your needs, your planner may suggest a number of investment options, including stocks, bonds, mutual funds, life insurance, long-term care/disability insurance and individual retirement accounts. Once you get on track with an investment plan, consider these five tips for managing your investments:

  • Start investing as early as possible and invest as much as you can every pay.
  • Define risk by whether your portfolio will be able to meet your overall objectives.
  • Match your investment objectives and your fund selections to your time horizon (when you expect to need your savings).
  • Take a long-term approach and consider making stocks or stock mutual funds the bulk of your portfolio if your time horizon is five years or more.
  • Re-evaluate your portfolio every year to keep it on target with your objectives.

It is important to note that there is no single right way to invest. In fact, flexibility in choosing investments is essential. One easy way to get started is through your company-sponsored retirement program -- typically a 401(k) or 403(b) plan. These programs are an excellent way for investors to proactively plan for their retirement. In many cases, employers will match a portion of an employee's contribution, increasing the value of your investment and causing it to grow faster. If your company does not have a retirement plan, if you are self-employed or if you are a homemaker, you should sit down with a qualified personal investment manager who can help you select a method of investing that meets your goals and fits your budget. If your company does not have a retirement plan, if you're self-employed or a homemaker, you should sit down with a qualified personal investment manager who can help you select a method of in-vesting that meets your goals and budget. The bottom line is that your money goes into different products.

Getting an early start will help you create a retirement plan that most effectively achieves your goals and gives your family security for the years ahead.


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