Planning For Retirement? Avoid Unrealistic Expectations



Living in a community with a large number of retirees, some Payson area workers tend to have the impression that quality retirement somehow magically happens when you reach retirement age.

Unfortunately, many Rim Country residents do not have realistic expectations about how to fund the retirement lifestyle they envision, nor are they at all clear about how much income they can count on during their retirement years. Consider these disturbing findings from the Employee Benefit Research Institute's 2006 Retirement Confidence Survey:

  • Low savings -- 52 percent of the surveyed workers who are saving for retirement reported total savings and investments of less than $50,000, excluding the value of their home or any defined benefit plan. (Defined benefit plans are the traditional pension plans, which are rapidly being frozen.)
  • Inflated expectations of benefits -- Many workers are counting on benefits that they are not going to receive. While 40 percent of workers said they or their spouses currently have a defined benefit plan, 61 percent say they expect to receive income from this type of plan in retirement. In other words, many people are counting on receiving a guaranteed pension in their retirement years -- even though their employers don't offer one.
  • Unrealistic views of income needed during retirement -- 59 percent of the surveyed workers say that, during retirement, they will want a standard of living that is the same as, or better than, the one they have now. Yet half the workers think they can enjoy a comfortable retirement on 70 percent or less of their pre-retirement income.

Clearly, many working Americans are just not "getting it" when it comes to paying for retirement. To avoid falling into this group, what should you do?

First, know what to expect from your employer's retirement plan. A 401(k) or other type of defined contribution plan won't offer the predictable income of a pension. Yet, a 401(k) does offer good opportunities for building retirement savings. Contribute as much as you can afford to your 401(k), and when you get salary increases, bump up your contributions. Also, look beyond your 401(k) for other tax-advantaged opportunities, such as an IRA and a fixed annuity.

Finally, don't underestimate how much money you will need to pay for retirement.

-- Scott Flake is a licensed investment representative with the firm of Edward Jones. For more information, call him at (928) 468-1470.

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