BOSTON -- Last week was National Retirement Planning Week. Did you miss it? That's OK. Oddly enough, not even many of those who work in the industry had a clue. In honor of this week -- sponsored by an industry coalition -- here's a look at two items to put on your to-think and to-do list.
No matter how you look at it, we Americans have not set aside enough to fund a traditional retirement. Heck, we don't even have enough to fund a non-traditional retirement, in which a would-be retiree works part- or full-time after what Social Security calls the normal or full retirement age.
Consider: The majority of workers are saving money for retirement (68 percent) but nearly half (46 percent) have less than $10,000 in savings and investments, according to the Employee Benefit Research Institute. And not surprisingly, half of all workers have no confidence about having enough money to live comfortably throughout their retirement years.
So what might you do? If you're not saving, start. If you have a 401(k) at work, start contributing at least 10 percent, if not more. On average, workers contribute 7 percent, but that's not enough for to fund a retirement where you won't have to sacrifice your future standard of living.
Yes, you might have to sacrifice your current standard of living. But that might be the better sacrifice to make. You don't want to get to the end of your life and find yourself, as some older Americans already do today, cutting back on much-needed medications, not just their life dreams. Remember, you won't run out of savings so much as you'll run out of lifestyle.
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If you're already saving in a 401(k), up your contribution. If you're salting away 3 percent, up it to 7 percent; if you're at 7 percent, move to 10 percent; and if you're at 10 percent, up it to the maximum allowed. And put it your increases on automatic pilot.
If you don't have a 401(k) at work, sign up to have money taken automatically from your bank account into an IRA or Roth IRA. Again, shoot for 10 percent of your gross income and make sure to adjust the contribution upward each year.
As a nation, we have to return to our roots where saving was an ingrained habit. How can we do that? One novel way is to think about what you'll look like when you're older. Seeing yourself as old and gray just might inspire you save more.
See this story that Wall Street Journal columnist Jason Zweig wrote on the subject, "Meet 'Future You.' Like What You See?" http://online.wsj.com/article/SB1000142405274870341060457621666375899010...
By the way, you can do this yourself: There are several apps and websites where you can upload an image of yourself and right before your eyes, you get transformed into a geezer. One such site is In20years.com. http://www.in20years.com/ Another site is the Face Transformer http://morph.cs.st-andrews.ac.uk/Transformer/index.html from the University of St. Andrews.
If ever I was inspired to save more, this would do it.
Another way to make savings a habit is to think about the benefits of saving. Write down your list and post it everywhere, on your refrigerator and on your bathroom mirror. If that doesn't work, consider setting up a recurring appointment in your electronic calendar. Maybe twice a year, when you change the batteries in your smoke alarms, consider upping the amount you set aside in your retirement accounts by one percentage point or some amount.
Research suggests that older Americans are worried about changes to Social Security and Medicare, as well as increased taxes. They should be, given what's happening in Washington, D.C., right now. To be fair, there's not much one can do about what the experts call public policy risk. There will be changes to Medicare and Social Security at some point, and tax rates will go up sure as the sun will rise in the East tomorrow.
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The questions are when, for whom, how much will change, and what does it mean from a planning-for or living-in retirement perspective. The good news is that if lawmakers make changes to Social Security and Medicare, those changes might be implemented gradually so you should have time to make adjustments.
Recall that the 1983 Social Security amendments phased in a gradual increase in the age for collecting full Social Security retirement benefits. As many now know, the retirement age is increasing from 65 to 67 over a 22-year period, with an 11-year hiatus at which the retirement age will remain at 66, according to the Social Security Administration.
As for taxes, it's time to think about the old adage, "It's not what you earn, it's what you keep." Yes, now would be a good time to be examine the most tax-efficient ways to save for retirement as well as examine the most tax-efficient ways to draw down your assets in retirement. At the moment, the research suggests that very few people are saving for retirement using Roth IRAs or Roth 401(k), accounts in which the distributions are by and large tax free.
What's more, the research suggests that retirees are not withdrawing their funds from their various tax-deferred and taxable accounts in the most tax-efficient manner either. To be sure, everyone's case might be a bit different, but many experts suggest withdrawing money from taxable accounts first, then tax-deferred accounts, and then from Roth accounts.
For its part, the Society of Actuaries offered the following ways to manage public policy risk: It suggest investing in municipal bonds, and using Roth IRAs and Roth 401(k) accounts. In addition, the SOA suggests converting a traditional IRA to a Roth IRA because doing so will lock in current income tax rates. Of course, there's no guarantee that Uncle Sam won't put in place new kinds of taxes that could reduce the purchasing power of such tax-free income from Roth accounts and municipal bonds. But it's the best defense against public policy risk at the moment.
