Do you have definite plans for retirement or are you unsure when and how you’ll retire, e.g., retire cold turkey or retire gradually? Either way, it is often useful to evaluate a variety of scenarios rather than focusing solely on the most likely.
Example: A 56-year-old whose employer had just been acquired wants to evaluate her financial status in the event she loses her job. She wasn’t quite sure what the future held in store. She could continue her job, find another if she had to, or might retire altogether. In this situation, she could evaluate her alternatives by running financial projections under a variety of scenarios, including:
– Retire now
– Continue working at the current job or another high stress job with a similar salary for five more years
– Work at a reduced salary for ten years
This example is but one of several scenarios that working age people might consider. Another is the possibility of involuntary early retirement through, for example, job loss with unlikely prospects of obtaining gainful employ, disability, or having to leave the job to care for a family member. About 40% of workers experience involuntary early retirement.
There are retirement projection calculators aplenty on the Internet. Once you set up the basic assumptions, it’s easy to massage the variables to look at different scenarios. Three variables you shouldn’t fiddle with, however, include your life expectancy (use 95 to 100), inflation (3% is prudent over the long term), and annual investment returns (5% to 6% is a sensible and probably achievable average return rate).
Smart Money Tips
- Procrastination pays. Grand sales lure consumers many weeks before the holidays, but traditional and online retailers are expected to lower their prices even further as the holidays approach. Therefore, procrastination may be beneficial this season. Also, ‘tis the season for impulse purchases (which account for one-third of holiday sales), so prepare a list before you shop, whether in person or online, and do your utmost to limit your purchases to what you’ve got on your list.
- Get friendly with your retirement savings plan at work. Speaking of becoming a more knowledgeable steward of your money, your company retirement savings plan may be your largest single investment account. Even if it’s not, you still need to become familiar with the available choices. Chances are you’re pretty much on your own when investing in your workplace retirement savings plans, including 401(k), 403(b), and supplemental retirement plans, so the time you devote to making sure this money is smartly invested is time well spent. Incidentally, if you’re over age 59½ and, like far too many workplace plans, you’re saddled with mediocre investment choices you can probably roll over some or all of this money into an IRA while being able to continue making contributions to your plan at work.
Food for Thought
It’s a long time until the next election, but it starts now. And if you truly want to see things change in the direction that our country is headed, you have to stay involved. You cannot quit now.
-Deb Fischer
Money Can Be Funny
That money talks I’ll not deny,
I heard it once. It said, Goodbye
-Richard Armour
Word of the Week
psephologist noun (se-fa-LA-jist) – One who undertakes the scientific study of elections
Origin: From the Greek psephos meaning pebbles. Pebbles were used by the ancient Greeks in voting.
Asked to comment on his projections for the last election, one prominent psephologist admitted: “I don’t have egg on my face; I have an omelet on my face.”