"Get Your Finances Ready For Retirement"-How Much Do You Need To Retire?
Monday, May 19, 2008SUSIE GHARIB: These days, Americans are more concerned about whether they'll be able to afford to retire. A new study by the American Society of Actuaries found rising health care costs and inflation have people worried that they'll run out of money during retirement. So if you're in your pre-retirement years, how can you tell if you're financially prepared to retire? In tonight's installment of our ongoing series "Get Your Finances Ready for Retirement," reporter Connie Hicks says it's a matter of considerable disagreement, even among financial planners.
CONNIE HICKS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Maybe this is your idea of retirement or perhaps it's traveling extensively to exotic or tropical destinations. Either way, you'll need to find a way to pay for your lifestyle. Deborah and Walter Byars (ph) are doing just that. They've been planning for their retirement for years by meeting with their financial planner, Gerald Grant. Their goal is to come up with the magic number: how much money they'll need to retire comfortably.
UNIDENTIFIED MALE: Retirement is like a permanent vacation.
HICKS: But vacations don't always cost what they're supposed to, so coming up with the right magic number for retirement can be tricky. The idea is to make sure your retirement expenses are covered by your retirement income. That's usually what you get from Social Security or a pension, plus the amount you can take out of a 401k account and other savings. Where do you start? Here's one method. Begin with your annual earnings when you retire. Now, figure out how much money you'll have coming in during a year in retirement. Some financial planners say the two numbers should almost match. But author Jonathan Pond says you should be able to live on far less than 100 percent of your pre-retirement income.
JONATHAN POND, AUTHOR, "YOU CAN DO IT!: I think where many financial planners say you have to have 80, 90 percent, 100 percent-- I've even seen 110 percent -- are too high for most people. Because if you really look at the expenses that will be reduced after you retire and it requires putting pencil to paper, but if you look at that, I think the number to maintain your lifestyle is more around 65 percent of your income.
HICKS: Wealth manager Patty Houlihan disagrees. She says living on two-thirds of your pre-retirement income is risky.
PATRICIA HOULIHAN, PRESIDENT, HOULIHAN FINANCIAL RESOURCE GROUP: Another rule of thumb a lot of people suggest you need only 70 percent. The reason I say 100 percent is because I know how people are. I've worked with clients for over 25 years in what I do and it's just I don't find them wanting to cut back. For example, they'll argue with me. They'll say, oh, Patty, we're going to sell the big house; we don't need all this room. Yeah, but they're going to get a condo with a view on the ocean, so the house that they sold is going straight into the condo that they're buying.
HICKS: Still Terry Savage, who's written a book on this subject, says it's vital to figure out where you stand in terms of your retirement finances. Savage suggests using an online retirement calculator to help you do the math.
TERRY SAVAGE, AUTHOR/FINANCE COLUMNIST: There's a wonderful website put up by the Employee Benefit Research Institute. It's called choosetosave.org and when you get there, you can click on something called the ballpark estimate and that will allow you to put in things like your income now and how much you've saved and what year you plan to retire and what percentage of your income you might want to replace in retirement along with an estimate of what you think inflation will be.
HICKS: Of course, seeing how your retirement finances stack up is just the starting point. You still have to plan carefully to make sure your money will last 20 or 30 years.
GERALD GRANT, JR., DIR. OF FINANCIAL PLANNING, AXA ADVISORS: The biggest concern that most people have is whether or not they will outlive their money.
HICKS: Gerald Grant says the Byars are in good shape because they've thought long and hard about their retirement financial needs. And he says others can learn from their example.
UNIDENTIFIED MALE: See, if you do it right, your retirement should be the best years of your life.
HICKS: Connie Hicks, NIGHTLY BUSINESS REPORT, Kendall, Florida.
GHARIB: Join us for more of "Get Your Finances Ready for Retirement" this coming Monday. It's our Memorial Day special edition. The web is also a big part of our efforts to help you get ready for retirement. On our web site, pbs.org/nbr, you'll find an extensive array of resources, information and tools you can use. The site will be updated frequently with new multimedia materials, including podcasts of our stories and specials, as well as extended interviews. So check out the "Get Your Finances Ready for Retirement" section of NIGHTLY BUSINESS REPORT at pbs.org.
