Published November 2005

Fancy shoes now,
less retirement income later

By Russ Lichty
Guest Columnist

The shoes are on sale for $52.99 and you absolutely have to have them. They’re not in your budget, but no big deal — you charge it.

You may love those shoes today, yet chances are, they won’t even be around when you retire. And that’s disheartening, because saving that money instead for retirement could have increased your fund by several thousand dollars.

According the American Savings Education Council, retirement living is costly. It is estimated that you’ll need about 70 percent to 90 percent of your pre-retirement income to maintain your standard of living. Where and when do you start?

Start saving now. The sooner you start saving for retirement, the more time your money has to grow.

Understand your current financial situation. If you save a mere $20 a week in a retirement account that earns 10 percent, in 25 years you will have more than $108,000.

Understand your financial future. The American Savings Education Council Web site, www.asec.com, has several interactive worksheets to help you determine how much you’ll need to save over your work life. It also will help you determine how much to save each week/month/year.

Develop a savings plan and stay with it. Make savings a habit and think twice about buying those three CDs — put the money in your retirement account instead.

Educate yourself in basic savings and investments. The types of investments and savings plans you establish will greatly influence the amount you have to spend when you’ve retired.

Investigate your Social Security benefits. The Social Security Administration automatically sends a benefit statement to workers over 25 who are not already receiving benefits. Over half of Generation Xers — those born between 1971 and 1981 — believe those benefits will be long gone by the time they need it — keep this in mind when planning your retirement.

Understand your employer’s pension or profit-sharing plan. Most employers automatically provide you a benefit statement each year. Also, take advantage of employment-offered 401(k) or other tax-sheltered plans.

Find out if you’re eligible for an Individual Retirement Account. There are certain rules for IRAs, so consult a tax adviser. If you are eligible, you can save more money, delay paying taxes on the amount saved and take an income tax deduction each year.

Ask experts about retirement planning. Your employer’s human resources department should have advisers, and financial institutions and tax-planning companies offer great expertise.

Don’t spend your retirement savings. Besides hurting your plans in the long run, it also will hurt you now — you may have to pay taxes on what you withdraw.

According to the education council, today, the average American retiring at age 65 can expect to spend 18 years in retirement. With improvements in lifestyles and health care, the good news is that members of Generation X likely can plan on having more retirement years than previous generations.

The challenging news: You may have to work longer before you qualify for retirement benefits — and save more to retire comfortably.

So, pass right now on that great sale on DVDs and the quick trip to Puerta Vallarta. Think instead about that European cruise you’ll be taking after you retire.

Russ Lichty is a financial consultant for Wells Fargo Investments in Everett. He can be reached at 425-304-6408 or by e-mail to Russel.C.Lichty@wellsfargo.com.

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