Wednesday, October 28, 2009

You've Earned Your Break--Now Make Sure that You Can Afford It

Congress designated last week as National Save for Retirement Week. The Illinois CPA Society has developed a five-step plan to evaluate your progress toward saving for retirement: [1] start with a plan--and realize that the older you are, the harder you will have to work to get where you want; [2] set priorities--how do YOU value retirement saving vs. saving for a child's college education; [3] think practically--if the numbers aren't coming out the way you would like; see if there are "little luxuries" (example: eating lunch out rather than "brown bagging") which you can reduce or eliminate; [4] check your plan regularly to make sure that it is keeping up with your needs; [5] consider your options--for example, can you leverage retirement savings by getting a match by your employer? Also, make sure that you are saving enough--the Illinois CPAs recommend 15-18% of income (as does Dave Ramsey). The article also points out that Social Security is only likely to provide about 40% of your preretirement earnings, but most people would like to spend 70-80% of preretirement level, meaning that even the people with the greatest confidence in Social Security need a second source which provides almost as much as their monthly Social Security check.

The advice of the Illinois CPAs, though hardly groundbreaking, is very reasonable. Particularly valuable--the idea that your retirement savings should allow you to take out the equivalent of 35-40% of preretirement income for 10-20 years (depending on health, age at retirement, whether your home is paid off and gender, among other things).


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