A slowing economy has led many Kentucky companies to
encourage older employees to consider retirement. But how can you be certain this
payroll-reducing inducement would be a good deal if offered?
First, determine what your income needs will be. Do
you want to travel a lot or are you content to stay at home? Are you going to
stay in your present house or move? You may need from 70 percent to over 100 percent
of your current income to support your lifestyle.
Second, you'll need to assess all benefits. How much
will you receive in company pension and health benefits, how much from Social
Security? Will your spouse continue to work? Will you or your spouse get a part-time
Spending Retirement Dollars
A survey of retirees found that their sources
of income were Social Security, 38 percent; pension, 27 percent; 401(k) or other
retirement-savings plans, 12 percent; personal investments, 16 percent; and
other, such as inheritances, 7 percent.
Some retirees live life to the fullest and spend
lavishly on travel and entertainment, without realizing that they may outlive
their capital. Other retirees are exceedingly cautious, scrimping and saving
whenever possible. These people face another, equally serious risk-they may
never have the chance to enjoy their hard-earned savings.
Try to avoid either extreme. Remember, while budgets
should not be created and revised on a whim, neither should they force you to
deny yourself unnecessarily.
Protecting your earnings
There are five threats to your retirement, according
to Money magazine, including the sudden elimination of the pension you had planned
on, the reduction or cancellation of retiree medical benefits, a reduction in
Social Security benefits, a surge in inflation, and "sabotaging" of
yourself by failure to put aside enough in savings.
Therefore, if you choose to retire soon, you need
to keep saving. A $2,000 monthly pension may look pretty good now. But with
an increase in inflation to 3.5 percent, for example, $2,000 will have the purchasing
power of only $1,000 in 20 years. Rather than spend all of their past investment
gains, retirees under age 75 should continue to reinvest some of the gains so
that the inflation-adjusted value of their savings doesn't decline.
Albert Einstein said the greatest invention of all
is compounded interest. The fortunate retirees will be those who woke up to
this fact while still young.
Web retirement information
To check if your retirement savings are on track,
use the electronic online calculator provided by mutual fund giants Vanguard
T. Rowe Price (www.troweprice.com).
Another good calculator can be found at www.financenter.com.
You can learn about the new rules governing withdrawals
from IRAs and 401(k)s at www.irs.gov.
Go to Appendix E of IRS Publication 590 and look for the chart titled "Table
for Determining Applicable Divisor for Minimum Distribution Incidental Benefit."
IRA tips and strategies are available at www.mpower.com.