Can you afford it? The key to a comfortable retirement is saving

New Mexico Business Journal, July, 1998 by Michael Bawaya

The key to a comfortable retirement is saving

As the financial planners say, it's never too early to plan for retirement.

If only you had socked away your weekly allowance in a no-load mutual fired or tax free municipal bonds rather than squandering it on toys and ice cream. But, of course, you didn't have a financial planner whispering in your ear back then.

Now you're paying an investment expert to give you an earful. And if you haven't done some saving for retirement, you may not like what you hear.

Bob Balow, a financial consultant with the Financial Network Investment Center, in Albuquerque, has a number of clients who are over 50 and seriously thinking about retirement. "Normally," he said, "what we'll do for a first-time client is a total financial plan and also discuss what kind of retirement they want, what kind of living style they want."

Balow takes into consideration such factors as his clients' ages, income, investments, insurance and dependents.

The first thing Mary Mahoney asks her clients is: "How much do you need to live on? Not want, but need?"

Like Balow, Mahoney, an Albuquerque Certified Financial Planner for the Financial Network Investment Corp., is practiced at projecting her clients' financial future. They are able to glimpse this future not with a crystal ball, but rather with a reliable software program. Once they have the necessary information about their clients' financial resources and the kind of retirement desired, the software allows Mahoney and Balow to crunch the numbers and inform their clients whether their desired retirement is fact or fiction.

It used to be, said Balow, that retirees were prepared to accept a decline in their living standards. But that's no longer the case. Many people want their retirement expenditures to be 90 or 100 percent of what they were when they worked. Most of his clients, however, have saved enough to have 75 to 80 percent. Another factor is the increasing life expectancy. "People are living

longer," Balow said. "They're outliving the nest egg they put away."

So how big a nest egg do you need to retire? That, of course, depends on the individual, but Balow offered a few instructive scenarios:

* The average retirement age is 62 and people who have reached that age have a life expectancy of 85. The person who retires at 62 and requires $40,000 a year to live on (a typical amount for this area, according to Balow) should have saved approximately $1.5 million to fund her 23 years of retirement.

* Someone who is 45 and wants to retire at 65 with $1 million would need to save $1,317 a month - assuming a 10 percent return - to achieve that goal. Someone who begins saving at 55 with the hope of achieving the same goal would have to save $4,882 monthly.

There are several things retirees should watch out for. "One of the things that concerns us is the large debt many of these people are carrying," Balow said. Much of that is credit card debt, which carries a punishing interest rate. Mahoney has seen retirees drain their financial reserves helping their children. She also advises against putting all savings into an IRA or a 401K due to their stringent rules, such as the penalty for early withdrawals. Balow said some investors are too cautious for their own good. "They've often been taught by their mom and dad that the only kind of investment is a safe one." Some people may need to be more aggressive in their investing if they're to attain their goals.