provided by: Gatehouse News Service
Retiring while you're still young enough to enjoy it is a goal that many people dream about. Only about 20 percent of Americans, however, have saved enough to feel confident about leaving the world of 9-to-5 before becoming eligible for Social Security. In fact, the 2007 Retirement Confidence Survey conducted by the Employee Benefit Research Institute indicates that nearly half of workers saving for retirement report total savings and investments of less than $25,000. This paints a dismal picture, but with a few basic measures, your dreams of early retirement can become reality. First things first - you have to begin a retirement plan early to reap the greatest rewards. While it's never too late to save for the future, a diversified retirement portfolio should have its foundation as soon as you start to save. Take advantage of all tax-deferred opportunities that come your way, including enrollment in your company 401(k). If your company offers a 401(k) employee contribution match program, by all means get on board. Also consider Individual Retirement Accounts (IRAs) - whether they're deductible or not. If you're 50 or older, you can contribute up to $5,000 a year. For the balance of your savings, have a plan that will match your tolerance for risk and have the greatest chances of meeting your financial needs. To accomplish this, you may look into mutual funds, money market funds, annuities, real estate and CDs. Once you have these basic savings mechanisms in place, get the calculator out and determine the cost of your present lifestyle and the way you want to live once you retire. There are a number of factors to consider when making these calculations, chief among them the cost of health care - and the fact that you'll not be adding to the nest egg anymore. When calculating how much you need for retirement, be on the conservative side and estimate expenses a little higher than they may actually be. Think carefully about how you will actually spend your days. Many early retirees complain of boredom, and re-enter the workforce for some productive interaction with other people. The fewer surprises the better. If you're still a decade or more from taking that early retirement, you'll need to make the choice between living large now or saving for the not-so-distant future. A regular savings strategy of a diversified portfolio that is compounding and left untouched is the most effective way of meeting that timeframe and goal. Pay off your mortgage by the retirement date, if possible. If that's not an immediate achievable goal, consider selling your present home and buying a smaller one outright - either now or when you are ready. If you have other large debts, pay them off as soon as possible, especially high interest credit cards or other consumer debt. Entering retirement debt-free is the goal for many early retirees.
John P. Napolitano is the CEO of U.S. Wealth Management in Braintree. Do you have a financial issue you want him to answer? E-mail him at biznews@ledger.com or call him at 617-786-7073. author: John P. Napolitano