Last time I pointed out that Social Security is not resting on as solid ground as
retirees and people nearing retirement believe – or try to fool themselves into
believing. (Many younger folks are more realistic, expecting never to be
lucky enough to see the benefits.) Without government guarantees, what
can you do to ensure a comfortable retirement? The only alternative is
personal savings.
Step
one is to make sure your idea of a “comfortable” retirement is realistic.
Dreams of world travel may not be in the cards. Unless you are already
living within your means and have acquired significant savings,
a realistic retirement will likely be no more than your current situation.
If you can’t live within your means today, the future will be no different and
you will be working until you die.
To be
realistic you must understand what you have coming in versus going out, but
must also have strong perspective, the ability (and willingness) to distinguish
between wants and needs. The biggest drawback to preparing for a
comfortable retirement is the pressure from friends, family and the media to
spend for today without regard to your budget and savings plan.
Once
you are skilled at living within your means, responsible use of credit cards is
a good option. Many people shun credit cards, but credit cards should be
treated like a tool with several benefits enabling you to: accurately
track expenses, build credit history and get better fraud protection than debit
cards or cash. And if you pay it off in full each month, the card
companies must give you the rewards and points even though you pay them no
additional interest or late fees.
For
the bigger purchases or emergencies, shop smarter. Use the Internet to
check competing prices and quality. Being realistic again involves
distinguishing between wants and needs. One big foolish purchase can
undermine years of careful spending.
Finally,
set savings goals based on a long-term plan. Project your
needs forward. You may have fewer expenses in retirement but you may have
more – remember about healthcare costs. Then use financial planning tool,
free on the Internet to help figure out how much income you'll need in retirement
and convert that amount to set a target savings amount.
Convert
the overall goal amount to a specific savings plan, so much per month or pay
period. If you can do better, the balance can be allocated to another
goal, like saving for college, and only after that spent on other luxuries you
initially decided to pass up during the needs vs. wants exercise.
Finally,
invest smartly and conservatively. “Save for the short term and invest
for the longer term." Bank accounts and money market funds are great for
emergency savings but retirement is long term and you can’t borrow to finance
it like you can for college and emergencies, so don't be concerned with the
possibility of short term fluctuations. Retirement accounts also offer
tax advantages and may get additional help from an employer 401(k) match.
It takes a little arithmetic (critical thinking) and some
perspective, but a few calculations and a few sacrifices now will be well worth
it when you don’t find yourself in the group of seniors, struggling to survive,
questioning what went wrong, regretting earlier decisions and blaming the system
for giving them a bad deal.
(Thanks
to Vanguard
Insights for many of these savings ideas, but this is not an endorsement of
any particular brand.)
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