Funding Your Retirement
Saving for your retirement is more important than ever.
Americans live longer and retire younger than ever. The average retiree leaves the workforce 62 years of age1. Since life expectancy at 62 is now an additional 23.5 years2, you need to plan for a long retirement. Also consider that, by definition, 50% of the population lives longer than their life expectancy. While living longer and healthier lives is obviously a great thing, the longer your retirement the more money you'll need.
Traditional pensions are fading in importance. Traditional pensions that promise to pay a retiree a set percentage of their salary for as long as they live are now rare for two reasons. First, many companies switched to the defined contribution type of pensions (such as 401(k) plans) during the 1990s. Secondly the average job tenure is now only 4 years, making many employees ineligible for a traditional pension, even if their employer offers one.
Social Security was never meant to be your sole source of income. Social Security was designed to ensure that retirees have a minimum income, not to provide a comfortable retirement. It is very successful at that task and succeeded in dramatically reducing poverty among retirees. But considering that the average monthly social security payment to a single person ($1,002 in January of 20063) is less than $200 above the Federal Poverty Guideline ($816 in 20064), Social Security alone does not provide the comfortable retirement many people want.
There is good news. With proper planning, and the help of a financial professional, a comfortable retirement may be easier than you think. There are a variety of ways to save for your retirement, and every dollar you put away makes it a little more likely that you can achieve the retirement of your dreams.
1 EBRI, 2003
2 IRS Publication 575
3 Social Security Administration
4 U.S. Department of Health and Human Services 1/24/2006