Retirement Why Quit for Good, When You Can Quit for the Better

Talking About Money

With Jim Larranaga

(ARA) - Only one quarter of Americans age 35 and older have amassed $100,000 or more for retirement, according to the Employee Benefit Research Institute's 2000 Retirement Confidence Survey. What's more, the previous year's survey found that 20 percent of "forty-something" workers haven't even begun saving for retirement. If you're among them, you might be in for an unpleasant surprise when you leave your job.

Calculate What You'll Need

Most experts say you'll need 70 percent to 80 percent of your pre-retirement income after you stop working. Given today's life expectancies, you could easily live 20 years beyond retirement. Seeing just how much money you'll need in retirement may give you a few gray hairs, but it can also motivate you to start saving - and fast.

When it comes to saving for retirement, the sooner the richer. The table below shows that for every $100,000 in your retirement nest egg, you'd have to save $2,114 a year for 20 years. Wait just five years to start saving and your annual contribution jumps to $3,598. (That's 70 percent more.)

Savings Goal

How Much to Save Each Year (in a tax-deferred investment with an 8 percent rate of return)

_________________5 yrs______10 yrs_______15 yrs________20 yrs$100,000________$16,944_____$6,805_______$3,598________$2,114$250,000_________42,360______17,013_______8,995_________5,284$500,000_________84,720______34,026_______17,989________10,568$750,000_________127,080_____51,039_______26,984________15,852

The American Savings Education Council reports that those who have calculated how much they'll need in retirement are more likely to save for their goal. And, they tend to save larger amounts. Fortunately, there are a number of tax-favored ways to set aside retirement funds.

Invest Wisely

Employer-sponsored retirement plans, such as 401(k)s, provide one of the best places to squirrel away your savings. You won't have to pay taxes on the money you contribute until withdrawal during retirement.* Plus, the contributions don't count toward your current taxable income. Try to chip in the maximum amount allowed, particularly if your employer matches all or part of your contribution, which helps your money grow even faster.

Traditional and Roth IRAs can also offer tax advantages. With a traditional IRA, you may be eligible to deduct contributions, depending on whether you participate in an employer-sponsored plan and your income. Whether you can deduct contributions or not, your money grows tax-deferred until withdrawal at retirement. Contributions to a Roth IRA are never deductible. But they offer a real plus - tax-free (yes, you read that right) withdrawals at retirement as long as you meet all the requirements.

Tighten Your Money Belt

Cutting unnecessary expenses can help you pare down your debt and boost your savings. Creating a budget may help. List your expenses, starting with the most essential. Make retirement saving a priority. Finally, consider paring the expenses over which you have some control, such as entertainment. You don't have to live like a monk, but I'm sure you can find ways to cut down discretionary spending.

Lengthen Your Timeline

Time equals money when it comes to saving for retirement, so staying in the game for a few extra years can help you stay ahead. Remaining on the job allows your investments more time to grow and may boost your Social Security benefits.

Remember - it's never too late to start building that nest egg.

* Withdrawals prior to age 59 1/2 may be subject to a 10 percent penalty.

Jim Larranaga is Executive Vice President of Priority Publications, a Minneapolis-based publisher of financial newsletters.

Courtesy ARA Content, www.ARAcontent.com; e-mail: info@ARAcontent.com

On average, women earn 76 cents for every dollar men earn in the workplace. Because women typically spend approximately seven years out of the work force to have and raise children, their earnings are even further curtailed. With lower pay and less time spent in the work force, women are generally left with smaller retirement portfolios, lower company pension benefits and lower Social Security benefits than men.

Despite the fact that women earn less money than men, they generally need a larger retirement nest egg. On average, women live seven years longer than men and must finance more years in retirement. And although a woman may share her husbands savings, those assets may be depleted quickly if he becomes ill and dies first, which considering life expectancy, is often the case.

In addition, 50% of marriages end in divorce, and the average age of widowhood is currently at 56 years. Therefore, most women are solely responsible for their finances at some point in their lives. What can women do to overcome these financial challenges? Here are 10 tips:

1. Take control. Despite the stereotypes, studies show that most married women actively participate or take the leading role in managing family finances. Moreover, women outnumber men in participation in investment clubs across America. However, some married women still leave the financial decision making to their spouse and may wind up ill equipped to handle their finances if they divorce or outlive their husbands.

2. Invest more. To make up for discrepancies in retirement benefits, women should consider investing more than their male counterparts. For example, a woman who takes seven years off from a 40-year career can expect to receive only half the pension benefits of someone with 40 years of uninterrupted services. The good news is that the U.S. Department of Labor reports that in an economy where the earnings of almost all other groups have remained the same or decreased, earnings of women have increased. Higher earnings for women should mean the potential for more investments.

3. Know your risk tolerance. Consider how much risk you are willing to take in exchange for the potential to earn higher returns. Historically, equity investments have provided higher returns over the long term than less-risky investments, such as money markets and short-term bonds, although past performance is no guarantee of future results.

4. Participate in employer plans. Collect information about the retirement benefits that are available through your employer and actively participate in any plans offered, taking advantage of all possible company matches and tax-deferred contributions.

5. Do not depend on pensions or Social Security. Fewer years in the work force, fewer years with a single employer and lower pay all may contribute to a lower average pension for female retirees. Women also tend to receive lower Social Security benefits than men. Benefits are calculated based on a persons highest 35 years of earnings. If the benefits recipient doesnt have 35 years in the work force, the Social Security Administration will add zero-earnings years to the record to equal 35 years. This will lower the average monthly earnings figure and may significantly lower your benefits.

6. Get out of debt. Debt is a serious issue for men and women. However, credit counselors report, that women are more likely than men to take the first step toward becoming more disciplined and reducing their debt. First, understand your spending and reduce spending so you dont continue to add to your debt. Then attack your existing debt by paying off high-rate debt first and if possible transferring high-rate debt to lower rate credit cards.

7. Do tax planning. With more female business owners and more single women buying homes and qualifying for mortgage interest and property tax deductions, tax planning is becoming an integral part of womens financial lives. If possible, always contribute the maximum amount to your IRA and/or 401(k) and maximize your tax deductions.

8. Keep retirement top of mind. Although women have made many impressive strides toward financial independence, they report having only half as much for retirement as men ($40,000 in annual retirement income for women vs. $80,000 for men). Generally, because women live longer than men, they should save 12% of their gross income for retirement, rather than just 10%.

9. Use resources. There is a wealth of helpful information easily accessible on the Web, including sites such as www.womensinvest.about.com, www.ivillage.com/money, www.wife.org, www.advancingwomen.com, www.momsbudget.com, www.msmoney.com, www.womens-finance.com, www.womensleadershipexchange.com and www.americanexpress.com/financial.

10. Seek help. Meet with a qualified financial advisor to create a financial plan specifically designed to help manage your personal economy.