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Retirement Planning in a Turbulent Economy

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How to Save for Retirement

For those of us whose with retirement savings that are 100% based in stock market funds, the last year has been a bumpy ride. Many of us have seen our 401K balances drop 40% or more, corresponding with equivalent losses in the major market indexes. The market’s performance brings up a few serious questions:

“Can my retirement plans rely on past stock market performance continuing into the future?”

“What if the stock market drops like it has when I’m nearing retirement? Will I have to keep working?”

“How do I save for retirement during times like this?”

If this economy has you second guessing your retirement strategy, it’s time for a reality check.

The Absence of a Pension is a Game Changer

retirement planningI was speaking with a neighbor the other day who is nearing retirement age. He has about $10K left in payments on the house as his only debt. Additionally, he gets a pension payment of $2,400 a month (adjusted for inflation), his health care is covered for life, and he received a hefty cash settlement as a buyout.

My father will receive 75% of his final salary when retiring as part of his pension plan, all health care covered, and he has also built a rather hefty 401K. Both my neighbor and my father were public sector employees. In combination with social security, they are set for life financially and aren’t overly concerned when the stock market takes a turn for the worse. However, this type of financial security is now looked at as a luxury, and not a right as it once was.

An Assault on Financial Peace of Mind

There has been an obvious assault on defined benefit pensions over the last decade or so, and I’m not sure that the current generation of young professionals fully understands the implications of what that means for our futures.

Long gone are the days when you could put in 30 years at a company and be covered for life through pension payments and health care coverage in retirement. Employers and employees both now look at employment as a temporary paid professional relationship with no long-term guarantees or security. This philosophy may be good for those wanting a variety of experiences in their careers, but it is horrible for those wanting financial stability and peace of mind in retirement.

Social Security will Cover my Retirement, Right?

Social Security is insufficient as a solitary means for retirement income. The Social Security Administration has a retirement benefits calculator that will quickly estimate how much you will receive in retirement in today’s dollars. Based on estimates, I would be able to replace less than one-third of my current income through Social Security benefits.

Although many experts may disagree with this statement, when planning for retirement I’d recommend looking at Society Security benefits as bonus income that shouldn’t factor into your retirement planning. Who knows if it will even be around in 40 years?

How Much Should I Save for Retirement?

This is a much debated topic that cannot be easily answered with generalities that fit all people. Many experts say you should save enough to replace about 80% of your pre-retirement income. Others argue for replacing 100% of your salary or more and point to the fact that many retirees want to travel and end up spending more than they previously had while working.

Everyone has a slightly different view of when they want to retire, how much they want to spend in retirement, and how much they want to save now. This is an area that should be fully explored through self education and even through speaking with a financial adviser.

Retirement Calculators

Along the way, there are many retirement calculators available that can be of great assistance in terms of giving you a better idea of how much of your current salary you should be saving. When using them, please be aware that that they will all use a slightly different methodology to arrive at their projections.

Additional Retirement Considerations Given the Tough Economy

  1. If you currently have an employer that matches your contributions all the way up to the IRS maximum, and you can afford it, max out your contributions. In general, everyone should take advantage of the full amount of their employers matching benefits if they can afford it.
  2. If you are married or otherwise have joint finances with another, strategize in a way so that both of you are taking full advantage of employer matches. This may mean that one of you decreases your contributions so that the other can increase theirs.
  3. If you live comfortably, have no short-term financial goals,and have additional income available to be save towards retirement, why not save it?
  4. Use the recent economic crisis as a means for motivation to save as much as possible towards retirement. Don’t become so discouraged with recent retirement savings losses that you stop saving altogether
  5. If the only experience you have with retirement is through witnessing your parent’s behaviors, it’s time for a reality check. Different generations require a different approach towards retirement. Your parent’s financial stability may provide you with a false sense of security when it comes towards saving for retirement.

Retirement Planning Discussion:

  • What is your retirement savings strategy?
  • How has the economic crisis effected your retirement plan?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • Craig says:

    I have not put money into my Simple IRA for sometime now although I feel that since I am young, and prices have dropped, this essentially would be the best time to put more money in. I know I should, at the same time I have expenses now and want to enjoy being a young professional, which can be costly. It’s a tough decision and I try to map out a basic plan between enjoying things now and saving a little for the long term, but it’s tough. How have you coped with this issue?


  • G.E. Miller says:

    @ Corky – It really depends on how well diversified you are as you near retirement. Those nearing retirement who had kept a large majority of their retirement accounts in stocks have suffered very large losses over the last year that may force them to delay their retirement. For most of the readers of this blog (fit a younger demographic), the best defense against possible future losses is to save as much as you can as early as you can.

    @ Craig – Enjoying being a young professional can mean different things for different people. For me, it means being happy with myself and not throwing money at material goods or lifestyle expenses. I don’t live a glamorous lifestyle, but I’m perfectly happy with that. I figure that the more I cut back on now the better off I’ll be when we do come out of this recession (the same philosophy that the strongest companies tend to embrace).

  • Folks often overlook this simple concept: we make plans to avert disasters. Turbulent markets should be considered (steady dollar-cost averaging contributions over a long period of time will offset this problem) along with tax efficiency (in tax deferred accounts), inflation (the tax on what we earn beyond the tax on what we earn), and the possibility that you may need to alter the plan as you age all help make a plan possible – and worth doing.

  • Eddie Boone-Lewis says:

    The reality is GOOGLE stock is TANKING effecting my child’s inheritance. Funds taken put in GOLD are losing — sorry, my boy – I thought in my 54 years, there would be SOMETHING left. Good Luck and Much Love


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