Baby Boomers are now coming of retirement age. Many of us are asking whether we have amassed enough...whether we've made the right decisions...and whether it's too late to compensate for past decisions that perhaps weren't so financially wise at the time.... This article from Fortune and Money Magazine offers not only renewed hope, but some good courses of action to start late and retire rich. Below, I've included a few retirement calculators from Bloomberg and MSN, an article from Kiplingers, and a book recommendation (along with a brief commercial/musical break) to further assist....
Start Late, Retire Rich
The 'R' moment looms closer than ever, but if you get serious now, you can still catch the magic bus.
By Penelope Wang, Money Magazine senior writer
Status Check: Tell it like it is
You suspect that you don't have enough, but have you ever stopped to figure out how behind you are?
"For God's sake, do a reality check," says Mari Adam, a financial planner in Boca Raton. "You may find you are doing better than you thought. If not, the sooner you find out, the easier it will be to catch up."
Studies have shown that the very act of planning can improve the odds of financial success. Start by pulling together financial information: your latest 401(k) and bank statements, your estimated Social Security benefit (visit ssa.gov) and your projected pension payout if you're fortunate enough to have one. (Ask your benefits office to run the numbers.)
Then go online to a retirement calculator, such as Fidelity's Retirement Quick Check, which will tell you how much you need to put away each month to give you the retirement income you'll need.
Or you could consult a fee-only financial adviser. (Get referrals at garrettplanningnetwork .com or use the search tool at fpanet.org.) You can also get a rough idea of how much you'll need by checking "Are You on the Bus?" below.
If the numbers look scary, remember, you don't have to stash away whopping sums all at once. And you can continue to work beyond retirement age. But you do have to get moving.
And now for a little joy.
Last year's Pension Protection Act continued the high contribution levels allowed in tax-advantaged accounts, such as 401(k)s and IRAs. So you can stash away a maximum of $15,500 in your 401(k) this year. (For regulatory reasons, your plan may set lower limits.) And most employers make matching contributions, typically 50% of up to 6% of salary. That's free money you shouldn't pass up.
You can also save as much as $4,000 in an IRA. And if you are 50 or older, you can make catch-up contributions as well - this year an additional $1,000 in an IRA and another $5,000 in your 401(k).
Even if you do all that, you may not come close to having as much as you need.
So to avoid spending your golden years in Junior's guest bedroom, you'll have to put money in taxable accounts too.
Choose tax-efficient investments, such as index funds or tax-managed funds, whose buy-and-hold strategies minimize short-term capital gains and interest income.
To come up with those extra savings, you'll have to liberate more cash from expenditures. You can start gradually, by resolving to live on less, say, for a three-month trial. Perhaps you can hold off on a new car for a few more years and vacation in St. Paul instead of St. Martin.
Either you learn to embrace the rather unappealing idea that you must curb your spending, or you can have money automatically withdrawn from your pay and plunked in savings before you ever see it.
"People usually find that they adjust their spending to the cash flow they have," says Adam. "The inconveniences are outweighed by how good you feel that you are on track to a secure retirement."
All too often, left-behind savers try to ramp up their funds by plowing a lot more money into stocks. That's not a great idea.
Researchers at T. Rowe Price assessed how shifting from a relatively modest 40 percent stock allocation to a go-for-broke 80 percent stake would affect the prospects of a catch-up saver, someone 55 years old earning $100,000 with $150,000 in savings.
After running thousands of market simulations, they found the larger stock allocation wasn't worth the bumpier ride. The 40 percent stock portfolio replaced only 27 percent of pre-retirement income, while the 80% portfolio replaced an almost identical 28 percent on average.
The reason: Though stocks historically deliver higher average returns over the long run, over any 10-year period you are more likely to endure some losing years, and there is less time for your gains to compound.
You could luck out and enjoy outsize returns, but the odds say you won't. "By the time you reach your fifties, the game is pretty much over," says Christine Fahlund, senior financial planner at T. Rowe Price. "And by loading up on equities, you may end up ratcheting up risk without significantly increasing your nest egg."
Instead of betting the farm on stock, you should create a well-diversified mix of U.S. and foreign stocks, bonds and other assets. One solution: a target-date retirement fund, a fund of funds that automatically shifts allocations to become more conservative as you approach retirement. (Both the Vanguard and T. Rowe Price series of target funds made our Money 70 list of recommended funds.)
Or you can build your own customized mix by using the Asset Allocator.
And to prevent a last-minute retirement disaster, lighten up on company stock in your 401(k). If your employer runs into trouble, you could see your stock crash and lose your job too, as Enron employees did. That's why many financial advisers recommend keeping no more than 5% to 10% of your portfolio in company stock.
Until recently some employers required you to hang onto your shares. But under the Pension Protection Act, companies must now permit 401(k) participants to diversify out of employer-contributed stock, typically over a three-year period. Be sure you do.
One of the simplest ways to boost your retirement savings is to lower your investment costs. Research has repeatedly shown that funds with high expense ratios tend to under-perform their cheaper siblings.
That's because high fees are no guarantee of superior performance. In fact, they take a bite out of performance.
So all things being equal, a lower-cost fund is more likely to give you a higher return without your taking any additional risk.
For example, if you invest $100,000 in a fund with a 1.5% expense ratio (the average for U.S. stock funds) and the fund gains an annualized 8% over 15 years, you will end up with $317,000.
If that same fund had an expense ratio of just 1%, you would earn an 8.5 percent return, which would produce $340,000, or $23,000 more.
If you currently own funds with high expense ratios, consider swapping into low-cost substitutes. It's easy to make an exchange in a 401(k) or an IRA, since there are no tax consequences.
In your taxable accounts, you'll need to weigh the possible tax bill before cashing out, but you can at least begin directing new money into lower-cost funds. Again, the funds on our Money 70 list all carry below-average expense ratios.
If, after all this, you still can't afford your ideal retirement, you may have to redefine what you mean by ideal. Can't stop working by age 62? Postpone retirement to 65.
In fact, Fahlund points out that by working longer, your employer underwrites your living expenses, including that ultra-expensive health insurance, while you continue to add to your savings.
Moreover, you have that many fewer years in retirement to finance on your own.
As the Center for Retirement Research found, by working for two or three more years, most Americans would substantially improve their retirement security.
And if you combine a few more working years with catch-up saving, you can pump up your holdings.
For many in the Big Chill generation, delaying retirement is not necessarily a hardship; it may be a goal. "People are increasingly recognizing the psychological benefits of staying active and involved in work, whether on a full-time or part-time basis," says Art Koff, author of "Invent Your Retirement."
"Stopping work at 62 doesn't fit reality," says Stephen Utkus, principal at Vanguard. "There's actually a transition period from your fifties to age 70, when people often work part time or full time, typically out of choice as much as financial need."
Still, finding a satisfying postretirement career can be difficult. Many employers are reluctant to hire older workers, and for some boomers, bad health (or at the least, creaky knees) may be an obstacle. You'll have to consider - better now than later - whether you want to or can work full or part time.
You'll also have to decide whether you can or want to continue what you already do or whether you'll need retraining or further schooling to qualify for your next career. "It's easiest to find work you like if you plan ahead while you are still in your regular job," says Koff.
Check to see if your current employer offers flexible work arrangements that would allow you to continue on a part-time or consulting basis after your retirement date. If you want to start your own business, try it as a hobby now so you'll know whether you like it before you invest all your savings.
As those now aging boomers once said (sang, actually): "You can't always get what you want, but if you try sometimes you just might find you get what you need."
And so it goes with retirement. It may not be the idyll you once imagined, but by getting serious now, you should have enough to let the good times roll.
Here's another article from Kiplingers that is also excellent: A Late Bloomer's Guide to Saving
One of the better books that I've found that's tailored to Baby Boomers on this subject is Ellen Freudenheim's Looking Forward: An Optimist's Guide to Retirement