How Aggressive Should I be with my Retirement Planning?

If you ever hope to retire and live off your savings, you need to be sure that you will have enough money to do so, and that your funds are safe and earning enough as you age. Experts recommend being prepared to have sufficient resources to generate between 70-90 percent of your earning power to carry you through retirement.

Now, if you are one of the very lucky few who can manage to salt away at least $1,000,000 prior to your retirement, you can probably live quite comfortably just off of the 4-5 percent interest it generates each year, while drawing down the principal a bit at a time, if necessary. Since that possibility is relatively out of reach for most of us, planning and budgeting for retirement is a necessity that generally takes a great deal of thought and attention over the course of our working lives.

Unfortunately many Americans are negotiating their debts and have low confidence that they will be financially secure once they do retire – about 22 percent do not save at all for retirement and almost 40 percent have saved less than $50,000. These people face difficult challenges in their later years as they confront the possibility of being unable to afford the basic necessities of life, much less the small luxuries that the dream of retirement offers.

But the question of how aggressive to be in planning one’s retirement is entirely individualistic and will be based upon:

• Your age at the time you begin saving for retirement – 40 years of saving beats 20 years.
• How much you already have put away for retirement as well as the sum total of all your assets.
• How much you earn and can afford to save each year for retirement versus how much you need to meet your financial obligations.
• What the return is on each of your savings investments and how they might fluctuate over time.
• What your projected needs will be after retirement – where and how you intend to live and even how long.

However, there are some accepted rules of thumb worth considering, regardless of how you have addressed the above. For instance the U.S. Department of Labor suggests that you:

• Start saving for retirement as young as possible, but start whenever you can – time is critical.
• Start small if necessary – even small investments can reap large rewards over time.
• Use automatic deductions from your payroll, whenever possible, in order to save regularly.
• Don’t borrow from your retirement account(s).

Financial planners also offer some suggestions about how to manage your retirement investments:

• 401K plans and Individual Retirement Accounts (IRAs) should make up the bulk of your retirement investments.
• Pensions and Annuities, if available, should also make up a sizable percentage of your post-working income.
• The younger you are, the more aggressive your investments should be.
• If you are 30, put 30% of your money in low risk, low-interest investments like money market accounts and government securities, and 70% in stocks, or stock funds, that offer a higher rate of return.
• Adjust your portfolio regularly, moving away from risk and into security as you grow older.
• By age 65, invest only 35 percent of your money in higher risk instruments and 65 percent in lower risk investments like Certificates of Deposit (CDs) and Bonds.

Remember that your Social Security is also an investment that you have made for retirement over your working life, and will likely average around 40 percent of your retirement income. The later you begin receiving your Old Age, Survivors and Disability Insurance (OASDI), i.e. Social Security checks, the larger each one will be.

Talk to a qualified financial planner and get some professional advice concerning your credit deficit and retirement strategy. And no matter how old you are, begin saving whatever you can, today. Your Golden Years will be here sooner than you think.