Saving For Retirement

Most people look forward to spending their “golden years” of retirement relaxing and doing things they didn’t have the time for during their working years. But a financially secure retirement that allows you to enjoy your new found free time doesn’t just happen. It takes much thought and careful planning on your part.

You probably have many questions about saving for your retirement. For example, how can you know how much to save when you don’t know how long your savings will need to last, how much you will receive from Social Security and what your expenses will be once you’ve retired?

To get a general idea of how to handle these questions, follow these easy steps:

1. Estimate how much your expenses will be at retirement.
   Most experts agree that your retirement expenses will be 30% lower than when you were in the work force. So if your monthly expenses while you are working are $1,000, they will probably drop to about $700 after you retire.

2. Estimate how long the money must last.
   The table below shows life expectancy based on when you might retire.
   
   
   Life Expectancy At Retirement In Years^*
   

   Retirement Age	60	61	62	63	64	65
   Male	19.81	19.05	18.31	17.57	16.85	16.15
   Female	23.11	22.28	21.47	20.67	19.88	19.09

   *Source: www.ssa.gov
   
   
3. Multiply your estimated annual expenses at retirement by the years you can expect to live after retirement.
   This gives you a rough idea of what you need in savings and retirement plans on the day you retire.

4. Next, deduct the amount you can expect to receive from Social Security.
   Contact the Social Security Administration at 1-800-772-1213 to receive your estimated benefits at retirement. On average, Social Security will account for less than 44% of your income, and if you’re in a higher income bracket, the figure could be more like 15%. The rest must come from other sources of income. 

The US Census Bureau shows that individuals 65 and older get 10% of their income from earnings and 3% from public assistance. In the last step above, we determined that social security would account for 44% or less. That leaves at least 43% of your income that you are responsible to provide. This income could include pensions, retirement savings plans, annuities, interest, dividends, rent and gifts. Again, those who earned more during their careers must provide a greater proportion of their retirement expenses.

So, where will you come up with the money you need to support yourself in retirement? To help you achieve your financial retirement goals, follow these general guidelines:

The sooner the better.
Retirement planning isn’t a topic often contemplated by those in their early 20’s who have just begun their careers, but it should be. The most important element in maximizing any savings plan is to start making contributions sooner rather than later. That’s because the earlier you start saving, the more time your money has to compound. 

For example:
Investor A  opens an Individual Retirement Account (IRA) at age 21 and contributes $4,000 a year to an IRA for five consecutive years until age 25. After contributing a total of $20,000 to the account, Investor A makes no additional contributions, but sees an 8% yearly return on the investment. By the time Investor A reaches age 65, the IRA will have earned $550,580.

Investor B  waits until age 41 to open an IRA, then contributes $4,000 a year for 20 consecutive years, until age 60. Assuming the same 8% growth rate, after contributing a total of $80,000, Investor B sees earnings of $290,473 at age 65.

Investor A earned approximately twice as much on the investment with a contribution only a quarter as large as Investor B’s by starting 20 years earlier.

Take advantage of tax-deferred investments.
Fortunately, there are a number of tax deferred investments that can help you save for retirement.

401(k) Plans and other plans offered by employers allow you to set aside part of every paycheck. Since the contributions are deducted before taxes are assessed, contributing to a 401(k) lowers your taxable income and earns tax-deferred interest until withdrawal. In some cases, your employer will match a portion of your contributions.

Individual Retirement Accounts (IRAs), may still be tax deductible, depending on your income and whether you or your spouse are covered by another retirement plan. But, in any case, an IRA’s earnings are tax deferred.

KEOGH Plans allow self-employed people to contribute a portion of their net earned income and allows the contribution to be tax deductible.

Protect Your Investment
At one time or another, you’ve probably been told not to put all your eggs in one basket. This is especially true when it comes to your retirement savings. There are many different ways to invest your retirement funds, so as you determine which ones are right for you, keep these things in mind. 

Insure Your Funds
Don’t take chances with your future by leaving your retirement funds unprotected. Invest in federally insured, principal protected savings accounts. Each depositor at Dollar Bank is insured to $250,000 by the FDIC. And since IRA deposits are insured separately from your other deposits, you are insured to $350,000 on both your IRA and other deposits. If you do decide to invest in alternative savings instruments, carefully examine the risks involved to make sure you know exactly what you are getting into. 

Time Your Deposits
Dollar Bank offers the CD Ladder. By dividing your money between short and long term CDs, you are purchasing yields that reflect market expectations for the future direction of interest rates. A CD Ladder offers guaranteed rate CDs, access to a portion of your money every 6 or 12 months and is FDIC insured. The CD Ladder protects your investment, is insured and times your deposits according to your needs. For more information on splitting CDs, click here .

Keep in mind that these suggestions and guidelines will only give you a rough idea of how much you need to save for retirement. Consider the lifestyle you want to have after retirement. Do you plan on traveling? Will you own your own home? The amount of money you will need to save will be affected greatly by your answer to these types of questions. As you can see, it pays to start planning and saving for retirement early in life. That way, your golden years can be the best years of your life.

For more information about Dollar Bank products that can help you save for the future, click here.

The information presented in this publication is general in nature; it is not our intention to provide specific advice to individuals or a comprehensive discussion of the subject matter. We suggest that you consult with your financial or tax advisor, accountant or attorney to obtain specific advice or comprehensive information.