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Your Retirement Planner Part I The ancient Chinese philosopher, Lao-tzu (ancient because he died in 531 BC!) is credited with the great proverb: "A journey of a thousand miles began with a single step." President Lyndon B. Johnson updated this by adding, "Peace is a journey of a thousand miles and it must be taken one step at a time." So, no matter what decade you're in -- your 20s, your 60s or somewhere in between, the smartest thing you can do is to take that first step on the journey toward having a peaceful and financially secure retirement. GETTING RID OF THOSE RETIREMENT JITTERS... Unless you live life on the wild side, it's pretty much a given that you will outlive both your parents and grandparents. Due to tremendous advances in the fields of medicine and nutrition, combined with basically a good health care system, we are, in fact, living long and healthy lives. The American Savings Education Council (ASEC) recently reported that the average American can expect to live at least 18 years after the official retirement age, which is 65. That's the good news. But of course, nothing creates more anxiety than trying to figure out how much income you'll need to live out this wonderfully long life, and where it will come from. The best antidote to what I call "the retirement jitters" is to have a rock solid plan - to face the issue - and fight any tendency to passively count on Social Security and your 401(k). So, let's start setting up that plan today. We'll begin by taking a look at how much you've already put aside and how much more you need to save. STEP ONE ON THE JOURNEY: KNOWING WHAT YOU HAVE & WHAT YOU NEED TO SAVE The very first step in any new project, whether it's losing weight, saving money, or learning a new skill, is always the toughest. That's why it's so tempting to bury your head in the sand...but just so you won't shy away from this first step, I've come up with a really easy, no-brainer way to get started. And, when we finish with Step One, you're going to be pleasantly surprised to know how much you're worth. Amazingly, most people severely underestimate their financial worth! I recommend that you begin by using the simple interactive calculator called THE BALLPARK ESTIMATE. Developed by the nonprofit American Savings Education Council, this worksheet can be found at: www.asec.org. It does not require an advanced degree in math nor the entire weekend to complete --there are only a handful of blanks that need to be filled in. TIP: If you're married, both you and your spouse will need to fill out your own estimate sheet. Once you finish this form, you'll be given a rough idea of how much you need to save to feather your retirement nest egg. Below is a list of the information you'll need to gather. (Even if you decide not to use the aforementioned form, you'll need these figures anyway to develop a sound retirement plan. In fact, any financial planner or broker will ask for these facts.) NOTE: IF you don't have JavaScript, you can simply print out the form and sharpen your pencil. 1) HOW MUCH YOU WANT TO HAVE The first question asks you to enter how much annual income you want in retirement. The ASEC recommends that in order to maintain your current standard of living, you will need 70% of your gross. You may find that on the high side, but go with it anyway. You can always make adjustments later on. 2) YOUR SOCIAL SECURITY BENEFITS. You'll need an up-to-date estimate of what your annual Social Security benefits will be. The Social Security Administration now mails out annual estimates. If you have a recent one, use that figure. Or, go to the Administration's website (www.ssa.gov) and click on "Benefits." You'll find three calculators for estimating how much you'll receive when you start collecting payments. Start with the first one on the left, called the "Quick" calculator. Enter your age and this year's income and it immediately spits out how much you can expect if you retire early, retire at 65 or later. Then, if you like, refine this with the more in-depth calculators. While on this site, I would suggest that you take time to browse about. Be sure to read about the benefits available for those who are disabled, widowed or divorced. Many people, especially those who are divorced, are unaware that, under certain circumstances, they are entitled to receive benefits from an ex-spouse. The FAQ section also has a number of helpful tips about getting the most out of Social Security. 3) YOUR PENSION PLAN You'll need to find out how much you can expect to get from your company-sponsored pension plan. If you're at sea over this, ask your human resources department or your benefits officer to give you an estimate. 4) OTHER INFORMATION The form also asks for the benefits you anticipate receiving from other sources, such as your 401(k), 403(b), IRA, etc. So, dig into that shoebox or filing cabinet and get out the latest statements. Or, if you track these figures on your PC through Quicken, Microsoft Money, or another software program, boot up. And, you'll need to total up the value of what you've saved. Don't be embarrassed if you haven't saved a fortune. The critical point is to gather the facts. This includes:
5) YOUR HOUSE Finally, THE BALLPARK ESTIMATE wants to know how much equity you have in your house. That's because when you retire, you may decide to downsize -- to sell your house and move to a less expensive one or into a retirement community. On the other hand, you may decide to stay right where you are and tap into the value of your property through a reverse mortgage. $TIP: For unbiased information on reverse mortgages, check out National Center for Home Equity Conversion (www.reverse.org), HUD (www.hud.gov/rvrsmort.html) and the Federal Trade Commission (www.ftc.gov). On the FTC site, type in "reverse mortgage" in the search box. THE RESULTS After you enter these figures on the Ballpark Estimate form, a dollar amount will pop up on the final line. This is the amount you will need to save each year in order to accumulate 70% of your current annual gross income when you retire. The dollar amount is based on how long you have until retirement -- 10, 15, 20, 25, 30, 35 or 40 years -- using an annual inflation rate of 3%. YOUR FINAL ANSWER, PLEASE The Ballpark Estimate, as it name implies, is just an estimate; it is not the final answer, but it is a good beginning. Now that you're found all your relevant papers and have become involved in the planning process, you may become intrigued enough that you'll want to get answers to more complicated questions. In the next sections of this RETIREMENT GUIDE we will cover:
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