December 03, 2008
Planning for retirement is both a happy time and a scary time, particularly with the impact the stock market has had on many retirement funds. Many people may be asking whether they can afford to retire at all. What are some of the key financial factors people need to consider when they think ahead to retirement?
Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:
"I think that's a key statement: thinking ahead. Well, the first thing you need to do is you need to figure out, roughly, how much you're going to need in retirement in terms of income in order to spend what you want to spend. What people usually do is they take their retirement spending as a percentage of the spending they have done during their working years. The old rule was to expect to spend somewhere between 75 and 80 percent in retirement of what you spent while working. Many economists, however, say, 'No, make it 100 percent. Don't assume your standard of living is going down.' So anyway, you need to set that amount. Then you need to find out what resources you'll have to fund this spending: pensions, social security, other savings and assets, and you need to compare the two. Now, if your resources exceed your planning spending, then, great, you're on track to a great retirement. If you have a shortfall, then you have to decide how you're going to make up that shortfall. Are you going to save more while working? Are you going to work more years? Or are you going to plan to spend less in retirement? It's very important to make these decisions and comparisons well before you get to retirement so that you're not surprised."
Posted by Dave at December 3, 2008 08:00 AM