State College, PA - Centre County - Central Pennsylvania - Home of Penn State University

Heading Toward Retirement

by on September 28, 2014 6:00 AM

The old saying "ignorance is bliss" seems particularly fitting when it comes to retirement.

The news and reports sound dire, with many families very behind in their savings.

What is the current state of affairs for future retirees? What is the best path to catch up?

Let's start with the studies. Bankrate's 2014 survey of retirement savings shows disappointing results. Over 25% of those surveyed age 50 to 64 have yet to start saving for retirement.

The statistics are particularly bad for those without an employer retirement plan (401k, etc.). Per the Employee Benefit Research Institute, these workers tend to have less than $1,000 in savings and investments. The consensus among studies is that people without a company retirement plan are the worst prepared.

Otherwise, the data runs the gamut. From Rand Corp, that claims 70% of older Americans are prepared for retirement, to Boston College that concludes only 48% of households are prepared. Because each study denotes a different retirement cohort, it is difficult to get a clear picture of the success or failure of Americans' retirement plans.

To make it clearer, it is important for individuals to take control and prepare for their own retirement. Rather than reading generalized doom and gloom articles, take stock of where you are financially. With the help of an advisor, compile your retirement accounts, desires and dates to run a comprehensive calculator to determine what steps you need to make.

A calculator can help you see if you fall short and the advisor will help you to decide what to do with the information. You can always decide to retire later than anticipated, save more towards retirement or even lower your standard of living in retirement.

There are several general things people typically fail to do that would help them move further ahead.

For those who do not have a retirement plan at work (who seem to be in the worst position, per many studies) or who are not eligible yet, you should continue to contribute toward retirement. For example, roll over your former employers' 401k(s) to an IRA and make contributions to that until you are eligible again for your employer's plan.

When you become eligible for your employer's plan, make your contribution the highest percentage you can (this way your contribution will increase when your pay does), particularly paying attention to any match your employer provides. An employer's match is the most significant return you can get on any investment so definitely take full advantage of it.

For low income workers, social security replaces a larger portion of their pre-retirement income. However, social security is based on your "average indexed monthly earnings during the 35 years in which you earned the most."

Therefore, if you have not worked 35 years, the zero years of earnings will count against you. In this instance, working longer to replace those zero years with earnings can make a large difference to your benefits. In addition, the longer you wait to take benefits, the better off you will be.

Eligible workers can claim as early as 62, but if you wait until age 70 (the latest age that you can start taking benefits), you increase your benefit by 8% for every full year after your full retirement age. The full retirement age (also called 'normal retirement age') for social security is 67 years of age for those born in 1960 or later.

To find out your social security situation, register on the social security website, At that website you can register for your social security statement and find out more details on social security in general.

In summary, you must plan and start as early as possible and put away as much as possible, particularly if you don't have a retirement plan through work. Otherwise, screenwriter Gene Perret's quote is applicable, "Retirement: It's nice to get out of the rat race, but you have to learn to get along with less cheese."


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Judy Loy, ChFCâ, is a Registered Investment Advisor and CEO at Nestlerode & Loy Investment Advisors, State College, Pa. A graduate of Penn State University, Loy has been with the firm since 1992, assisting clients with retirement planning, brokerage services and investment advice. She can be reached at [email protected]
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