Retirement Planning

According to the recent TV documentary from PBS Frontline, retirement is a gamble at best. Well, not if you plan wisely and prudently.

The middle class. Marketers target it. Politicians champion it. Economists talk about it. Most of us consider ourselves part of it. But no one can define it. And that poses a challenge for financial planning.

When I ask for a clear definition, I do not find anybody who really can tell me what "middle class" is. I recently posted on Twitter that $90,000 was a middle-class household income and that it would take a nest egg of $3 million to generate that income in retirement.

The idea of retiring at age 65 with a gold watch is a quaint notion for many Americans. Amid declining wages and low interest income, most people have a tough time setting aside money for retirement. If anyone can help, it’s employers who must set up good workplace savings plans.

This topic needs the openness of a robust discussion from all stakeholders, airing all sides of the argument. We seldom get that.

The key to meeting savings goals is to make putting away money automatic. This takes away the opportunity to overspend and you can’t make excuses to not save.

One reason most Americans have a tough time saving enough to meet crucial financial goals, such as retirement, is the difficulty of finding the willpower to sacrifice present wants for future needs.

A lot of mutual funds cost too much and deliver too little. But amazingly, many investors stay in these funds because they don’t pay attention. This inertia costs them dearly.

Even after 25 years of helping people plan for their financial futures, I’m still shocked by what I call stragglers. These are left-behind holdings in an old 401(k) plan or individual retirement account. Perhaps it is even a taxable mutual fund the investors automatically contribute $25 a month to. Many times, the funds’ performance is ignored and simply awful.

Retirement might be decades away, but it may not come at all if you don’t take stock of your current financial situation today.

For too many hard-working folks, there is a significant gap between the retirement life they desire and the one they can afford if they do not adequately prepare for the future. Traditional goals such as living in an inviting home and devoting time to adventurous travel may not be realistic for you unless you take the time now to calculate how much retirement money you will actually need.

Since the late 1970s, many companies changed retirement plans from traditional pensions to 401(k)s and other plans that don’t guarantee a fixed payout. But many believe that 401(k)s actually fail to help Americans effectively save for retirement.

What good is wealth without health? Too many people don’t realize that taking care of themselves physically leads to better financial tomorrows.

Planning for retirement should start in your early twenties, if not before. Why? Because you develop good health habits early and health governs the quality of life long before retirement, and certainly after.

Target date funds are mutual funds that automatically reset their asset allocation as you age. Typically, the mix shifts from stocks to presumably safer bonds. These funds might be a great investment for you, but they have little-appreciated risks of their own.

The cost of housing, healthcare and other basic necessities rise faster than wages. How can you keep up with price increases and still save for retirement? Plan ahead for rising costs early on and take some risk to combat rising costs.