Design your personal escape route

Black Enterprise, May, 1996 by R. Theodore Benna, William Proctor

If you're going to be ready for the inevitable (Social Security) crisis that is already beginning to threaten us, you will most likely have to change your lifestyle and your financial habits--and you should act now if you hope to maximize your enjoyment and safety after retirement.

The following steps will help you design your own personal "escape route" from the coming retirement crisis.

FIND WAYS TO SAVE MORE MONEY

The minimum amount that most people should be saving is 10% of before-tax income. Some may feel that this suggestion is too tough, but in fact, it's a rather modest level of savings, given what some other financial counselors are recommending.

For example, one column in the Wall Street Journal, published on Nov. 8, 1994, advised that it's possible to save whet you need for retirement beginning at age 45--as long as you "save like crazy and invest heavily in the stock market."

The writer assumed that you were now earning $50,000 a year and would need $37,000 inflation-adjusted income at retirement. He suggested that you first push back your targeted retirement age from 65 to 67. Then, you would assume Social Security payments of $12,000, which would leave you with another $25,000 a year to generate. By setting aside 17.3% of your salary each year for the next 22 years, and investing 80% of your savings in stocks and 20% in bonds, you could achieve your goal.

The point is that you should start immediately setting a substantial portion of your income aside. Then, as you get comfortable with investing this much, push the envelope a little. Try to edge those savings upward, to a level that will enable you to reach a truly enjoyable retirement.

BE REALISTIC ABOUT SOCIAL SECURITY

What do you think you can actually expect to receive in Social Security income? First, you should find out from the Social Security Administration exactly where you stand now. Call 800-772-1213 and order the required forms to find out your status. This will let you know the amount you will be entitled to if the laws and regulations remain the same up until the time you actually retire.

How much do you think you can actually count on?

Of course, I don't have a crystal ball, but to be safe, I would suggest that you do your planning with the following guidelines in mind:

* If you are over 60: Assume that your benefits at retirement will be the same as they would be today.

* If you are 50 to 60: Assume that your benefits will be 75% of what they would be today.

* If you are 40 to 49: Assume that your benefits will be half of what they would be today.

* If you are younger than 40: Don't count on any benefits at all--or at least no more than 25% of what they would be today.

These predictions may seem unduly pessimistic, and I do sincerely hope that I'm proven to be wrong, but I always prefer to be relatively cautious in retirement planning.

IDENTIFY EVERY POSSIBLE SOURCE OF RETIREMENT INCOME

As you are surveying your possible sources of investment income, don't forget:

* Home equity: Consider the question of whether or not you should sell your home, or move to a less expensive place.

* Company pensions: Keep track of various benefits you may qualify for in the different jobs you have held during your career. They can add up! Also, if your employer provides a defined benefit pension plan, consider staying on this job until the normal retirement age (usually 65). This way, you will get the full benefit of "back-end loading."

There may be other sources of income that you can think of, such as valuable collectibles like artwork or jewelry. So survey your assets to see if there is anything that might be liquidated and put to work through other investments.

Excerpted from Escaping the Coming Retirement Crisis: How to Secure Your Financial Future, by R. Theodore Benna and William Proctor; copyright [C] 1995, Pinon Press. Reprinted by permission of the publisher.