Your Retirement Plan

Your Retirement Plan: Have You Calculated Your Number?

by Alexander Green, Chairman, Investment U
Investment Director, The Oxford Club
Friday, April 18, 2008: Issue #785

Admit it. You’ve thought about your retirement plan…

What is your number, that big round amount you need to accumulate in order to live comfortably in retirement?

I’m going to take a wild guess and say that figure is probably north of $25,000. But brace yourself. According to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) released last week, 60% of current retirees have less than $25,000 in total savings and investments.

Personally, I can’t imagine how they manage it. Sure, some of them have pensions. Virtually all of them are receiving Social Security and Medicare benefits. But still… heading into your “golden years” with less than $25,000 in your retirement plan must be terrifying.

Those of us still in the workforce could use a little shaking up too. The same survey shows that 36% of workers have less than $10,000 in retirement savings! Another 13% have less than $25,000. In other words, nearly half of all workers have less than $25,000 saved for retirement.

Some of these folks could benefit from reading Aesop’s tale about “The Ant and the Grasshopper.” There are clearly a lot of grasshoppers among us. I think I know why...

Your Retirement Plan Is Your Responsibility

Surveys show that nearly half of all workers – I think we can assume which half – believe their retirement plan and costs are the responsibility of their employers or the federal government.

Yet pension plans are going the way of the Dodo bird. They’ve been replaced by 401(k)s. And, for young workers, Social Security benefits are a demographic time bomb.

When the Social Security program was created in 1935, a 65-year-old American had an average life expectancy of 12 ½ years. Today, it is 18 years… and rising. In addition, 78 million baby boomers began retiring this year. In 30 years, there will be twice as many Americans eligible for Social Security as there are today. Meanwhile, the number of workers per beneficiary has dropped from 5.1 in 1960, to 3.3 in 2007, to a projected 2.1 in 2032.

For political reasons alone, current retirees are safe. But we baby boomers can’t realistically expect future generations to pay the mountain of taxes required to support us into our 90s. It’s just a matter of time before the age of eligibility is raised, benefits are cut, or both.

However, if you’re working now you still have time to make the choices that will lead to a more comfortable retirement. As the American writer Elbert Hubbard said, “responsibility is the price of freedom.”

Our job at Investment U is to help you grow your investment portfolio as much as you can so it lasts as long as it can. But the whole process starts with disciplined saving. You have to forego current spending to receive future benefits. Essentially, you need to save as much as you can, for as long as you can, beginning as soon as you can. (Millions of boomers are learning that this means working longer than they originally planned.)

If you must remodel the kitchen, own that new 50″ plasma TV or take that trip to Disneyland, save for them separately. But question first of all whether you really need them.

Your Retirement Plan & Your Financial Welfare

When you take responsibility for your financial welfare and your retirement plan, it’s empowering. You let go of the idea that it is someone else’s obligation to provide for you in retirement. It means making hard choices. But, trust me, no one at your company or in Washington cares as much about your financial future as you do.

Those of us at Investment U will keep doing everything we can to help you manage your money intelligently. But if you find yourself in the bottom half of workers in the 1997 Retirement “Confidence” Survey, consider this your wake-up call.

Or, as my 78-year-old mother likes to say, “You better get ready. You’re not gonna believe how quick you get here.”

Good investing,

Alex

Today’s Investment U Crib Sheet

Americans, as a group, are saving next to nothing right now. Take a look:
Fortunately, kick-starting a personal savings program has never been easier…
Simply begin an automatic investment plan. Putting away a fixed amount of money each month is the fastest way to jumpstart your portfolio. Nearly every mutual fund family and brokerage firm can do this for you, and it won’t cost anything to get started. We recommend the Vanguard group of funds.
To automatically invest in:Stocks: We suggest the Vanguard Total Stock Market Index Fund (VTSMX).

Bonds: We also suggest the Vanguard Intermediate-Term Investment Grade Bond Fund (VFICX).

Cash/Money Markets: We recommend four funds in Investment U Issue #675, Vanguard Funds: The One Mutual Fund That’s Hotter Than a Hedge Fund.
Why Vanguard? It’s simple. The expense ratios at Vanguard are dirt-cheap. And keeping investment costs down – including fees – is one of the easiest and most effective ways to boost your total return over the long run. For more information, just visit wwww.vanguard.com or call 877.662.7447.