It's Never Too Early or Too Late to Start Saving and Planning for Retirement

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Most Americans anticipate their own retirement as the reward for years of hard work " a long vacation at the end of life, with opportunities to travel, volunteer, visit family, or pursue hobbies. This idyllic span of golden years is still within reach for most of us " but only if you have managed to save enough to support your post-work lifestyle over a period of 20 or more years.

Daily you hear or read news stories about an impending Social Security crisis and system reform; pensions lost or reduced through company bankruptcy; and nest-egg accounts shrunk by stock-market corrections. It's no wonder that retirement worries are among the concerns most often voiced by baby boomers, the next generation to reach retirement age.

Experts estimate that you will need 70 to 80 percent of your present income to meet everyday living expenses in retirement. According to an October 2002 AARP report, Social Security accounts for about 40 percent of total retirement income, so if you are among the four out of 10 middle-aged Americans who have accumulated less than $100,000 for retirement, the time to act is now.

"The easiest approach to retirement savings is the marathon model " begin early, increase contributions as your income grows, and reap the benefits of compounding over the years," said Elaine Weiss, president and CEO of the Illinois CPA Society. "If you come late to the game, the race may seem more like a sprint, but it's never too late to start saving. With proper financial planning, it's still a race you can win."

The first step is to estimate the income you will need in order to live the way you want in retirement. This includes determining where you will live, likely medical and household expenses, and expenditures for travel and hobbies. Will you still have a mortgage? Will you have any other debts at retirement time? Once you have a firm grasp on your requirements, you can compare your resources to your needs and make plans to address any funding gap.

Getting started is often the hardest part, but there are many options among retirement savings vehicles, and a financial planning professional can help you determine what best suits your circumstances.

The Illinois CPA Society offers these strategies to fund a long and happy retirement:

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* If your company has a 401(k) plan, start participating now. If there is a company match, contribute enough to get the full benefit of this "free" money.

* Plan your investment portfolio with an understanding of your timeline and personal-risk tolerance. If you are older, you will have less time to ride out market fluctuations on higher-risk investments.

* You may qualify for a traditional IRA (which uses pre-tax contributions) or a Roth IRA (which uses after-tax dollars, but does not tax the money that you take out in retirement).

* If you are carrying significant credit-card balances or have other debt, make a plan to pay those off before retirement.

* If it's possible to pay off your mortgage, consider accelerating your payments.

* If you are over 55 and anticipate a funding shortfall, scour your present budget for savings so you can contribute the maximum to your retirement account.

* Finally, remember that the traditional model of retirement is changing. Americans are living healthier and longer lives. Some 57 percent of affluent retirees plan to work part-time in retirement, while 26 percent hope to start a business. If your savings fall short and you elect to make up the difference with part-time work, you will be in good company.

To ensure that your retirement plan will achieve the desired results, consult a CPA or other financial professional.

Written by Illinois CPA Society
This page is updated on May 27, 2013.

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