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The Ohio Department of Aging

Ohio Department of Aging Boomerang: It all comes back to you!

Boomerang: It all comes back to you!

My Future - July 2011

When is too late to start saving for retirement?
Saving is always a good thing, but needs planning to be effective

Financial experts say retirees will need to replace 70 to 80 percent of their working income to continue living as well as they did when they were part of the workforce. You can depend on Social Security to replace only about 40 percent of workplace earnings, on average. The rest of your retirement income will have to come from other sources. If you were really smart (or really lucky), you started saving for retirement in your 20s. But, if you are like most adults, early retirement planning became something you thought about while life happened. Kids, car payments and emergencies took precedence over saving for a far-off event like retirement. Now, you are probably starting to wonder if you are going to be able to retire comfortably at a reasonable age.

Regardless of at what age you begin saving, your retirement planning should start at the end. Specifically, you need to determine the amount of money you will need each year in retirement. This will give you a target to shoot for and a way to tell whether you're making progress. The total amount you'll need to save, along with how much you need to put away every year to reach that goal, depends on many factors.

In general, you can expect your expenses to go down in retirement because you won't have to drive to work, buy business clothes or eat lunch out. By then, your home likely will be paid off, your children will be out of the house and on their own and you will be paying lower taxes because of your lower income. However, some expenses may increase. In particular, your health care costs and the possibility that you may need long-term care of some kind, are likely to rise. Inflation also will continue to erode your retirement dollars. Also, if there are any additional major expenses that you anticipate during retirement, you will need a higher income to cover that. Do you want to travel? Will you relocate to an area with a lower cost of living or tax advantages for retirees?

Think about at what age you'd like to retire and how long you think your retirement will last. This is a nice way of saying that you need to think about how long you can expect to live. It's a practical question; knowing how long you can expect to be around after you retire can help you prepare. There are life expectancy calculators that can give you an estimate based on several factors, which could help in planning your retirement. You could have additional funds coming in during your retirement. Will you want to work when you're retired? Are there any pensions or trust funds you can count on? Is taking out a reverse mortgage to transform the equity in your home into income a viable option?

Both the Social Security Administration and AARP have online retirement calculators that can help you plan your future financial needs. With that information in hand, you can begin to talk to financial planners about retirement savings plans. Different plans have different advantages and disadvantages, particularly when it comes to relative risk, return and tax consequences. Do your homework and get professional advice to find the savings plan that will work best for you, so you can retire when - and how - you want.

It is undeniable that the sooner you begin saving, the more time your money has to grow. The good news is that it's never too late to see benefits from saving. But, you have to put some thought into it to get the most out of it. Know what you spend now, what you will likely spend in the future and how you will pay for the things you will need and want, and that will help you determine how to get there.

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