As the snow builds up across the hills and highways, more and more Kentuckians find their thoughts turning to retirement and those mornings when they can go back to sleep and not worry about the cows or putting on a necktie.
For a thousand and one reasons—some good, some bad—many Americans are finding themselves heading into late middle age having done little to prepare for retirement.
Slightly more than one-fourth of households headed by 45- to 54-year-olds don’t have an IRA or 401(k) retirement account, according to a survey by the Employee Benefit Institute.
Never too late to save
“It’s not hopeless. The key is action,” says Jordan Goodman, author of Everyone’s Money Book on Retirement Planning, who calls the savings procrastinators the “catch up” generation.
Start by looking closely at what retiring on a fixed income means, whether you are living on proceeds from selling the farm or a pension from an employer.
Compromises are likely. Late starters may have to stay on the job longer or work part time in retirement.
Staying on the job can have a big effect on retirement income because there’s more time to save and invest and fewer years to finance, says Stuart Ritter, a financial planner with T. Rowe Price Associates.
Another option is to trim your retirement needs by choosing a simpler lifestyle.
Late savers shouldn’t wait to live more cheaply, says Ellen Hoffman, author of The Retirement Catch-Up Guide. Cutting costs now can build savings quicker.
How much is enough?
How much you should be saving now to ensure a comfortable retirement depends on what you expect after retirement. As a rule of thumb, you should figure on spending in retirement at least 70 percent of your current gross income. A survey of retirees found that their sources of income were Social Security, 38 percent; pension, 27 percent; personal investment-savings plans, 12 percent; and other, such as inheritances, 7 percent.
When toting up the numbers, don’t forget to factor in the effect of inflation. At an annual rate of 6 percent, the cost of living would double in about 12 years. Thus, if you are 45 now and can live on $40,000 a year, you would need $80,000 a year when you are 57, and $160,000 a year when 69.
Finding a retirement home
Matching your projected living expenses with income from retirement sources will reveal whether there’s an “income gap.” If there’s no shortfall, start shopping for sunglasses. And grab a copy of Warren Bland’s book Retire in Style: 50 Affordable Places Across America.
Don’t forget, though, that your money has to work in retirement, even if you don’t. For a retiree, assets have to accomplish two things: provide income for today, and grow to provide income in the future.
Avoid dipping into investment principal. If you retire at 55 and by 65 have not touched your principal net worth, you’ll probably be financially secure for your remaining years.
Start planning now if you’re wanting to retire away from Kentucky, suggests Bland. Take annual vacation trips to serve as scouting trips for possible retirement locations, even though you may be some years away.
Before you go, make a list of what will be important to you in retirement—entertainment, health care, housing, and cost of living—then visit a range of areas to see what each offers.
As the “baby boomers” age, demand for the best retirement locations will increase and so will prices, he adds.
WEB SITES FOR SENIORS
Web sites for seniors and soon-to-be retirees can provide help with finances, health, and hobbies.
Covers topics from travel to politics.
Has calculators to help you run the numbers before deciding to refinance a mortgage or move to a new place with a different cost of living.
An interactive site that helps seniors find programs to assist with housing, finances, and other needs.