by Robert Powell, provided by MarketWatch
What's the best way to motivate Americans to save, invest and prepare for retirement? Some behavioral finance experts suggest using the carrot. Others suggest using the stick. And still others suggest using a combination of carrot and stick.
As for me, I suggest the use of statistics. Consider just a sampling of the numbers that have been released this year:
IRAs and 401(k)s
There's $4.23 trillion in individual retirements accounts, but that figure hides the fact that very few Americans contribute to an IRA and even when they do the amount is small.
On average, just 10% of eligible Americans contributed to an IRA for the years 2000 to 2002, according to the latest issue of EBRI Notes. And in 2004, the median contribution to a traditional IRA was just $2,300, according to the Investment Company Institute. The maximum you could contribute to an IRA in 2004, by the way, was $3,000 or $3,500 for those 50 and older.
Now you might say that's not so bleak given that working Americans are presumably saving for retirement using an employer-sponsored plan, such as a 401(k), 403(b), 457 or Thrift Savings Plan. But again, the numbers are somewhat depressing.
There are nearly 100 million Americans age 21 to 64 working full-time, full-year. But of that number, just 60% or 58.4 million work for an employer that sponsors a retirement plan, and only 52.7%, or 50.8 million participate in a retirement plan.
That means roughly half of all working Americans don't participate in a retirement plan or don't have an employer-sponsored plan in which to participate. It also means that a huge number of adult Americans -- by my estimate 150 million of a potential 200 million -- aren't saving for retirement in any meaningful way, if at all.
Retirement risks
According to the Society of Actuaries' 2007 Risks and Process Retirement Survey, roughly half to 60% of retirees worry about three things: the cost of health care, the effect of inflation on their nest eggs and not being able to maintain a reasonable standard of living for the rest of their life.
Those worries are justified given the lack of savings in America. But what's really bothersome is the degree to which those who aren't worried should be.
Consider, for instance, health-care costs. Fidelity Investments estimated earlier this year that a 65-year-old couple retiring today would need $215,000 set aside just to pay for medical expenses over a 20-year span. And if that wasn't depressing enough, other estimates are even higher.
Paul Fronstin of the Employee Benefit Research Institute, for instance, said a 65-year-old couple retiring today would need, assuming average life expectancy of 82 for men and 85 for women, more than $300,000 set aside to pay for health-care costs (premiums and out-of-pocket expenses) in retirement, and more than $550,000 if the couple lives to age 92.
What's even more depressing is that neither the EBRI nor Fidelity estimates factor in the cost of nursing homes, long-term care or assisted-living facilities, or home health aides. And those costs are staggering.
According to the MetLife Mature Market Institute, it costs $69,000 per year for a semiprivate nursing-home room, $35,628 per year for a unit in an assisted-living facility, $19 an hour for a home health aide and $61 per day for an adult day care center. Where's that money going to come from?
Retirement expenses
Retirees and would-be retirees are also right to fret about maintaining their standard of living. Consider, for instance, these numbers: The median household income (half above, half below) in America is $48,451 and the average is $65,527, according to the U.S. Census Bureau. But in retirement, income falls dramatically.
The average total income for those 65 and older in America is $25,610, and the median was a meager $16,770, according to EBRI Notes. That means retirees are living on roughly one-third of their preretirement income. And that's a far cry from the 70% to 80% income replacement experts suggest Americans need to maintain their preretirement standard of living.
Besides not having the income to maintain a similar standard of living, retirees will face expenses that are certain to rise faster than the average rate of inflation.
Consider, for instance, the results of the 2002 Consumer Expenditure Survey. On average, retirees spent 32.6% on housing, 14% on food, and 13% on health care. But that's the average. What's interesting is the degree to which money spent on health care in retirement changes over time.
For instance, those 55 to 64 spend 6.8% on health care, those 65 to 74 spend 11.2% and those 75 and older spend 15.1%. That percentage rises in part because the cost of health care is rising twice as fast as the core rate of inflation (less energy and food), 5% vs. 2.3%, according to the U.S. Bureau of Labor Statistics. But it also rises because older retirees tend to spend more on health care than younger retirees.
Source of retirement income
So where do retirees get their income once in retirement? Again, the numbers are depressing (and deceiving). On average, retirees get 39.8% from Social Security, 23.7% from earnings, 19.4% from pensions and annuities, 15.4% from assets (IRAs and the like) and 1.9% from other sources, according to EBRI Notes.
But the composition of the income changes dramatically based on income. Retirees in the bottom fifth of income, those with less than $8,261 in 2006, got 87.6% of their income from Social Security while those in the top fifth of income, those with greater than $34,570, got 36.4% from earnings, 22.6% from pensions, 20.5% from assets, and just 18.5% from Social Security.
The moral of story
If you are among the 150 million who are not saving for retirement, now would be a good time to do so. If you are among the 50 million who are saving for retirement, now would be a good time to save more.
If you are among those who aren't worried about health-care costs, inflation or maintaining a standard of living in retirement, now would be a good time to start worrying.
If you are among those who worry about retirement risks, now would be a good time to do something about it: Set aside money for health care, for instance.
And if you are among those who don't know what your sources and composition of retirement income will be, now would be a good time to figure that out. After all, waiting to see how things might work out isn't the world's best plan.
Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.
2007年12月30日 星期日
Retire a Millionaire
provided by Kiplinger
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65.
The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
AGE 25
You've saved: $0
To reach $500,000, what you need to save per month: $143
To reach $1 million, what you need to save per month: $286
To reach $2 million, what you need to save per month: $573
Get help from Uncle Sam: You may qualify for a retirement-savings tax credit of 10% to 50% of the amount you contribute to an IRA, 401(k) or other retirement account. The credit can reduce your tax bill by up to $1,000. To qualify, your income must be $25,000 or less if you're single, $37,500 or less if you're a head of household or $50,000 or less if you're married.
AGE 35
You've saved: $0
To reach $500,000, what you need to save per month: $335
To reach $1 million, what you need to save per month: $671
To reach $2 million, what you need to save per month: $1,342
You've saved: $25,000
To reach $500,000, what you need to save per month: $152
To reach $1 million, what you need to save per month: $488
To reach $2 million, what you need to save per month: $1,159
Get help from your boss: If your employer offers a matching contribution, contribute at least enough to your 401(k) to capture the full match. Otherwise, you're walking away from free money. Try to save 15% of your gross income for retirement, including your employer match.
AGE 45
You've saved: $0
To reach $500,000, what you need to save per month: $849
To reach $1 million, what you need to save per month: $1,698
To reach $2 million, what you need to save per month: $3,395
You've saved: $25,000
To reach $500,000, what you need to save per month: $640
To reach $1 million, what you need to save per month: $1,489
To reach $2 million, what you need to save per month: $3,186
You've saved: $50,000
To reach $500,000, what you need to save per month: $431
To reach $1 million, what you need to save per month: $1,280
To reach $2 million, what you need to save per month: $2,977
You've saved: $100,000
To reach $500,000, what you need to save per month: $12
To reach $1 million, what you need to save per month: $861
To reach $2 million, what you need to save per month: $2,559
Play catch-up: Aim to contribute the maximum $15,500 to your 401(k) this year or $4,000 to your traditional or Roth IRA. Once you turn 50, you can contribute an additional $5,000 in catch-up contributions to your 401(k) and an extra $1,000 to your IRA.
AGE 55
You've saved: $0
To reach $500,000, what you need to save per month: $2,733
To reach $1 million, what you need to save per month: $5,466
To reach $1 million, what you need to save per month: $10,932
You've saved: $25,000
To reach $500,000, what you need to save per month: $2,430
To reach $1 million, what you need to save per month: $5,163
To reach $2 million, what you need to save per month: $10,629
You've saved: $50,000
To reach $500,000, what you need to save per month: $2,126
To reach $1 million, what you need to save per month: $4,859
To reach $2 million, what you need to save per month: $10,326
You've saved: $100,000
To reach $500,000, what you need to save per month: $1,520
To reach $1 million, what you need to save per month: $4,253
To reach $2 million, what you need to save per month: $9,719
You've saved: $200,000
To reach $500,000, what you need to save per month: $306
To reach $1 million, what you need to save per month: $3,040
To reach $2 million, what you need to save per month: $8,506
Stay on the job: Working a few years longer can boost your savings.
Source: Nuveen Investments
Copyrighted, Kiplinger Washington Editors, Inc.
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65.
The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
AGE 25
You've saved: $0
To reach $500,000, what you need to save per month: $143
To reach $1 million, what you need to save per month: $286
To reach $2 million, what you need to save per month: $573
Get help from Uncle Sam: You may qualify for a retirement-savings tax credit of 10% to 50% of the amount you contribute to an IRA, 401(k) or other retirement account. The credit can reduce your tax bill by up to $1,000. To qualify, your income must be $25,000 or less if you're single, $37,500 or less if you're a head of household or $50,000 or less if you're married.
AGE 35
You've saved: $0
To reach $500,000, what you need to save per month: $335
To reach $1 million, what you need to save per month: $671
To reach $2 million, what you need to save per month: $1,342
You've saved: $25,000
To reach $500,000, what you need to save per month: $152
To reach $1 million, what you need to save per month: $488
To reach $2 million, what you need to save per month: $1,159
Get help from your boss: If your employer offers a matching contribution, contribute at least enough to your 401(k) to capture the full match. Otherwise, you're walking away from free money. Try to save 15% of your gross income for retirement, including your employer match.
AGE 45
You've saved: $0
To reach $500,000, what you need to save per month: $849
To reach $1 million, what you need to save per month: $1,698
To reach $2 million, what you need to save per month: $3,395
You've saved: $25,000
To reach $500,000, what you need to save per month: $640
To reach $1 million, what you need to save per month: $1,489
To reach $2 million, what you need to save per month: $3,186
You've saved: $50,000
To reach $500,000, what you need to save per month: $431
To reach $1 million, what you need to save per month: $1,280
To reach $2 million, what you need to save per month: $2,977
You've saved: $100,000
To reach $500,000, what you need to save per month: $12
To reach $1 million, what you need to save per month: $861
To reach $2 million, what you need to save per month: $2,559
Play catch-up: Aim to contribute the maximum $15,500 to your 401(k) this year or $4,000 to your traditional or Roth IRA. Once you turn 50, you can contribute an additional $5,000 in catch-up contributions to your 401(k) and an extra $1,000 to your IRA.
AGE 55
You've saved: $0
To reach $500,000, what you need to save per month: $2,733
To reach $1 million, what you need to save per month: $5,466
To reach $1 million, what you need to save per month: $10,932
You've saved: $25,000
To reach $500,000, what you need to save per month: $2,430
To reach $1 million, what you need to save per month: $5,163
To reach $2 million, what you need to save per month: $10,629
You've saved: $50,000
To reach $500,000, what you need to save per month: $2,126
To reach $1 million, what you need to save per month: $4,859
To reach $2 million, what you need to save per month: $10,326
You've saved: $100,000
To reach $500,000, what you need to save per month: $1,520
To reach $1 million, what you need to save per month: $4,253
To reach $2 million, what you need to save per month: $9,719
You've saved: $200,000
To reach $500,000, what you need to save per month: $306
To reach $1 million, what you need to save per month: $3,040
To reach $2 million, what you need to save per month: $8,506
Stay on the job: Working a few years longer can boost your savings.
Source: Nuveen Investments
Copyrighted, Kiplinger Washington Editors, Inc.
2007年11月29日 星期四
Seven Ways to Boost Your Retirement
How to earn more money after you've retired
Ready to retire but worried that you won't have enough money? Don't play the "woulda, coulda, shoulda" game. Even now it's not too late to increase your income and your financial security.
1. Consider working a little longer. For the average worker, staying on the job for just two more years lowers the amount of savings you need to finance your retirement by about 25%, estimates the Center for Retirement Research at Boston College. Not only do you get the benefit of the additional income, but you also get a few more years to sock away money and accrue pension and Social Security benefits.
2. Build tax-free retirement income. Contribute to a Roth IRA while you're working. If you're 50 or older next year, you and your spouse can each contribute up to $6,000 to Roth accounts--$5,000 in basic contributions plus a $1,000 catch-up-as long as you meet income requirements (in 2008, your income can't exceed $169,000 if you're married filing jointly or $116,000 if you're single). [link to Roth stories]
3. Downsize. Financial advisers generally recommend that you assume you'll need about 85% of your pre-retirement income after you leave your job. But it pays to do a budget dry run. By paying off your mortgage, or moving to smaller digs or a less expensive area, you may be able to increase your cash flow and get by on much less.
4. Keep 50% of your retirement savings invested in the stock market. That will protect your assets from being eaten away by inflation.
5. Delay taking Social Security. Wait till your normal retirement age to receive Social Security in order to maximize benefits. Once you reach normal retirement age, you can even receive full benefits while you continue working. If your husband's benefits are larger than yours, waiting till full retirement age to claim them will also result in bigger payouts for you as a surviving spouse.
6. Tap your home equity with a reverse mortgage. This relatively new real estate product lets you borrow against your equity and forgo repayment for as long as you stay in the house (for more information, go to http://www.reversemortgage.org/ or search "reverse mortgages" at http://www.hud.gov/).
7. Buy an annuity. If you don't have a pension, you can guarantee a stream of income that you can't outlive by using some of your nest egg to buy an immediate-payout annuity. To see how much income you can buy, go to www.annuityshopper.com.
By Janet Bodnar.
Ready to retire but worried that you won't have enough money? Don't play the "woulda, coulda, shoulda" game. Even now it's not too late to increase your income and your financial security.
1. Consider working a little longer. For the average worker, staying on the job for just two more years lowers the amount of savings you need to finance your retirement by about 25%, estimates the Center for Retirement Research at Boston College. Not only do you get the benefit of the additional income, but you also get a few more years to sock away money and accrue pension and Social Security benefits.
2. Build tax-free retirement income. Contribute to a Roth IRA while you're working. If you're 50 or older next year, you and your spouse can each contribute up to $6,000 to Roth accounts--$5,000 in basic contributions plus a $1,000 catch-up-as long as you meet income requirements (in 2008, your income can't exceed $169,000 if you're married filing jointly or $116,000 if you're single). [link to Roth stories]
3. Downsize. Financial advisers generally recommend that you assume you'll need about 85% of your pre-retirement income after you leave your job. But it pays to do a budget dry run. By paying off your mortgage, or moving to smaller digs or a less expensive area, you may be able to increase your cash flow and get by on much less.
4. Keep 50% of your retirement savings invested in the stock market. That will protect your assets from being eaten away by inflation.
5. Delay taking Social Security. Wait till your normal retirement age to receive Social Security in order to maximize benefits. Once you reach normal retirement age, you can even receive full benefits while you continue working. If your husband's benefits are larger than yours, waiting till full retirement age to claim them will also result in bigger payouts for you as a surviving spouse.
6. Tap your home equity with a reverse mortgage. This relatively new real estate product lets you borrow against your equity and forgo repayment for as long as you stay in the house (for more information, go to http://www.reversemortgage.org/ or search "reverse mortgages" at http://www.hud.gov/).
7. Buy an annuity. If you don't have a pension, you can guarantee a stream of income that you can't outlive by using some of your nest egg to buy an immediate-payout annuity. To see how much income you can buy, go to www.annuityshopper.com.
By Janet Bodnar.
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