Take the Lead in the Retirement Race

Physician's Money Digest, June30 2004, Volume 11, Issue 12

The numbers don't lie—the General AccountingOffice reports that only half of allbaby boomer households are saving enoughto maintain their current standard of livingwhen they retire. The problem isn't a shortage of earningsto fund a retirement, it's simply a refusal to save.

Newsweek

Boomers are earning more than their parentsearned, but they're spending more as well. Physiciansknow the routine. And now, with retirement loomingaround the corner, some are panicking, some are stillin denial, and virtually all are in need of a plan to helpthem catch up after a late start in the retirement race.A recent article in offers a plan not just forfinishing the race, but winning it.

Come Back to Reality

Before you can put a plan in motion, it's importantto face up to and recognize certain truths. First, stopliving in denial. Retirement will be here before youknow it. And thinking you'll recoup your retirementlosses simply by waiting for Cisco shares to rise againis foolish. As the article notes, soufflés rise only once.

Similarly, don't panic or live in fear. Too manyexperts have stated that you can't retire unless youhave at least $1 million in your retirement nest egg.That's a nice cushion to have, but not essential. Don'tbeat yourself up over what you could or should havebeen doing yesterday. Focus instead on what you cando starting today.

Spend less, save more. Sounds like a simple formula,right? In theory, yes, but in practice, it's somethingmany people have trouble doing. Some basictactics, such as cutting back on dining out, are helpful.But in reality, if you're trying to recoup the moneyyou lost in the stock market or just starting to save inmidlife, omitting those dinners won't amount tomuch. You need to take some serious steps.

The article suggests moving to a less-expensive area,downsizing to a smaller house, and not taking expensivevacations. Two Web sites that can help are BestPlaces.net, where you'll find information on the cost ofliving in different cities, and RetirementLiving.com,where you'll get a listing of each state's taxes, as well astips on locating retirement communities.

When it comes to saving, your best bet is to funda retirement account. If you're currently doing so, tryincreasing your contributions by 2% every year. Andif you receive a raise, make believe you never saw itand save that as well. It's too easy to think of it asfound money and stuff it in your pocket.

Eliminate Your Debt

As a society, we're borrowing more money, refinancing our homes every other year, and buildingcredit card debt—all major deterrents to winning theretirement race. The end result, the article notes, isthat the number of people age 65 and older who filedfor bankruptcy in the past 10 years has tripled.

Cutting up or throwing away credit cards is oneway to rectify the problem. But another suggestion isto promise yourself that you're not going to refinanceyour home again. You may be lowering yourmonthly mortgage payments, but you're extendingthe time period in which you're making payments. Ifanything, raise your monthly payments to buildequity faster. Then, at retirement, you can use thatequity to buy a smaller home or condo for cash andstill have money left over.

Newsweek

Of course, even the best made plans can falter,which is why it's a good idea to have a backup plan.As the article notes, investors lost a lot inthe market because they didn't anticipate the chancethat stocks might fall.

One consideration is that you might be able—orwant—to work longer. The article points out that byworking an additional 2 years, you'll not only add toyour retirement nest egg, you'll reduce the number ofyears it has to be relied upon.