How much do you really need to retire?

Black Enterprise, August, 1992 by Tom Toolen

If you think you're too young to start planning for retirement - think again - starting early can eliminate troublesome financial woes.

Many people dream of retirement in terms of languid days spent gloriously on green courses, sandy white beaches or golden summer resorts. But the reality is that because of poor planning or no planing at all, most folks will barely be able to pay their bills when they retire.

Those who think pension and Social Security benefits will bail them out in their senior years are sadly mistaken. Together these funds will account for half of as retiree's financial needs. And even that amount is assuming a person has worked for the same company for nearly 20 years. Unfortunately, a growing number of employees are paying the price of reduced retirement income due to career-switching and corporate downsizing.

Most people also fail to take into account how inflation eats up their pension dollars. A pension benefit may be a fixed amount or it may increase with the cost of living. If an employee's pension is not adjusted for inflation - and most are not - a $20,000 pension today will only be worth $10,772 in 10 years, assuming a 6% annual inflation rate.

The best way to avoid a bare-bones retirement is to squirrel away as much money as possible. "Many people between the ages of 30 and 50 are concerned about their retirement years. They are also fundamental miscalculations in their planning," says John Gummere, chairman and CEO of Phoenix Mutual Life Insurance Co., pointing out the earlier a person begins to save, the better.

This is borne out by hard numbers. Someone age 30, for example, could sock away $3,000 a year at 8% and amass $367,000 by retirement, thanks to compound interest. But if that person waits 15 years to save - at age 45 - he or she would have to put away $12,500 a year to come up with the same amount.

Regrettably, a poll conducted by Princeton, N.J.-based Gallup Organization Inc. for Phoenix Mutual shows the typical baby boomer has accumulated only $25,000 in retirement savings plans and $10,000 in personal savings accounts. Respondents were 30 to 50 years old with annual household incomes of at least $30,000. A startling 25% of those polled had not started to save for retirement at all.

This is especially true of the 76.5 million baby boomers who are having a hard time getting into the savings mode after the giddy "I-can-have-it-all" '80s. Even baby busters - those in their 20s - are vulnerable. Waiting too late to save for retirement could set back their standard of living for the rest of their lives.

To compound the lack of savings problem, the typical American worker also has less disposable income these days. The average paycheck, adjusted for inflation, is no bigger today than it was more than 20 years ago. And the fact is that people who earns less are inclined to save less.

Unfortunately, some people who have extra money, don't always think it's necessary to save. "I know someone whose idea of financial planning is to get enough money out of the automatic teller machine to last the weekend," says Mary H. Frakes, editor in chief of Stages magazine, published quarterly by Fidelity Investments in Boston and targeted at firms with 401(k) and other defined contribution retirement plans. "This person makes $87,000 a year and has no family to support. He should be doing something smart with his money."

Still, others just find it difficult to plan ahead and deal with large numbers. For this reason, many financial advisers break down retirement figures in simple terms. Investment consultant Cheryl D. Broussard of Broussard & Douglas Inc., Oakland, Calif., gives seminars where she tells participants to think of putting just $3.25 a day in a cookie jar. "I then explain that if they do that every day and the money earns 8% interest, they will have more than 7,000 in five years. People are surprised that such a small amount of money grows so fast," she adds. "So, not only does saving early help, but a modest amount will do."

Getting A Jump On Retirement

Individuals and families who have steady savings habits have peace of mind when they look at their balances, knowing the Caribbean cruise and not the bread line awaits them at retirement.

"Nothing is certain in life, but without planning I won't have a chance to have a fulfilling retirement," says Thomas Givhan of Birmingham, Ala., a pharmaceutical salesman for Roche Biomedical Laboratories Inc.

Givhan, 47, contributes 16% of his income in a 401(k) plan. He and his wife, Jan, who owns a boutique, have a household income of around $100,000. The couple also has about $10,000 invested in Fidelity mutual funds, which are divided into three areas: fixed income, growth and income and aggressive growth stock funds.

"That money is going strictly towards our retirement since we've already taken care of our children's college needs," he says, referring to the $93 a month each that they put away for Tajmah, 4, and Tahira, 1, into a state-sponsored prepared education fund, which guarantees tuition payment when the girls are ready for college.