THE POWER TO CHOOSE -- Updated January 2010

You Have The Power

How far away is your retirement - 40 years?...30?...20?...10?...5? With life expectancies on the rise, retirees can plan to live 20 years or more in retirement. Have you thought about how you'll spend that time? Most important, have you thought about how you'll afford your retirement dreams?

Many people wonder what the future will hold for their retirement. The answer is likely to be rising costs of goods and services, modest benefits from Social Security, and for some people, lower incomes. Saving for retirement has never been more challenging - or more critical. While most of us recognize some convenient, proven ways to save for our future, few have set retirement goals and developed a plan for achieving them. In fact, a recent study revealed that 73% of those preparing for retirement believe they should increase their efforts.

Whether your retirement is a few years away - or a few decades away - familiarizing yourself with basic retirement-planning concepts will help you choose both a retirement lifestyle and a plan for making it happen.

The Good News...
Healthier lifestyles and improved medicines have significantly lenghtened life expectancies.

The Bad News Is...
You'll need much more money to support a longer, more active retirement.

How Do You Want to Retire?

How have people you know such as your parents, grandparents, and/or others in your life accomplished their retirement goals? Examining their situations may be a good place to begin your own self assessment. Perhaps they have earned a pension through a long career with one employer, or maybe they supplement their monthly Social Security check with part-time earnings. No matter what the circumstances, their lifestyles are a direct result of the choices they made throughout their careers. And it's probably true that both employers and the government play a big role in their retirement finances.

As you compare yourself with these people, consider that you will encounter different challenges on the road to retirement.

Your Employers: The average worker has seven employers over the course of a 40-year career. An employer-sponsored retirement savings plan can provide a valuable foundation upon which you can build a personal financial strategy.

Social Security: These benefits will play a more limited role in the retirement picture for individuals who wish to retire at age 65 because the age of normal retirement will gradually rise. Normal retirement age is the age at which an individual may retire and receive full unreduced Social Security benefits. For individuals born 1938-1942, normal retirement age will gradually increase in two-month increments from 65 to 66. For those individuals born from 1943-1954, normal retirement age will be 66. For individuals born 1955-1959, normal retirement age will gradually increase in two-month increments from 66 to 67. For those individuals born in 1960 and later, normal retirement age will be 67.

According to the 2009 Social Security Board of Trustees Report, for a worker retiring in 2007 at normal retirement age, Social Security replaces 34.6% of final pay to a worker at $64,738; 41.5% at $40,461; and 56.0% at $18,207. In addition, many analysts contend that Social Security benefits will need to be reduced, or retirement age raised further, before many of today's workers reach retirement.

You've Heard This All Before

Though the future holds many uncertainties, one thing is for sure: You'll need to play an active role in planning for retirement. So what's the next step? The key to a successful strategy is a well thought-out plan.

Retirement Planning Is Not Rocket Science.

As a start, think about the type of lifestyle you'd like for retirement. How much money will you need to support it? Experts suggest that 75-90% of your pre-retirement salary adjusted for inflation is a good estimate - but your income needs may be different. If you put a pencil to paper and actually figure this out you're well ahead of the game. In 2009, only 44% of workers tried to calculate how much money they need to save for a comfortable retirement.


Subtract the income you're likely to receive from these sources from the total income you will need. You have just taken the first step toward a meaningful retirement strategy by setting a goal.

The next steps involve setting realistic plans to achieve your retirement goals by saving on a regular basis. Remember, the magic combination of time and compound interest means that even small contributions can make a big difference.

There are many convenient ways to save for retirement. You should determine which are available to you and decide if you can take advantage of the many benefits they offer.

Retirement Savings Plans May Be Offered at the Workplace.

Your employer may offer a retirement savings plan that enables you to contribute pre-tax dollars right from your paycheck. Learn all you can about these plans, including the different investments you can choose. Your employer may match your contributions - an instant return on your money. Start early and contribute as much as possible; time and tax deferral can make even small monthly sums multiply over the years.

When choosing among the different investment alternatives, also consider the time you have until retirement and invest as aggressively as your time frame will allow. Remember, the greatest risk you face is retirement risk - not having enough money to live the lifestyle of your choice.

Individual Retirement Accounts (IRAs) Also Provide Tax Deferral.

For every year that you have earned income, you are entitled to contribute to an IRA that will grow tax deferred to help meet your retirement needs. Many banks, mutual fund companies, insurance companies, and other financial service providers offer IRA accounts. Check them out. In some cases, you may be eligible to deduct all or part of your IRA contributions from your income for the year the contribution was made. IRAs offer a great way for everyone to save for retirement.

Annuities Are Another Long-Term Strategy.

Offered by insurance companies, brokerage firms, banks, and other financial services organizations, annuities provide the benefits of tax- deferred saving and retirement- income alternatives similar to traditional pensions. You can contribute to an annuity and avoid current taxation, helping to make your savings grow faster than they otherwise may. Fixed annuities pay a fixed rate of interest for a specified number of years and may offer a principal gaurantee from the issuing insurer. Variable annuities do not offer guarantees, but provide the potential for greater growth through an array of investment funds, including stock, bond, and stable value alternatives. The opportunity for savings growth on a tax-deferred basis makes annuities worth considering.

Or Just Set Some Money Aside...

If you've already taken advantage of some of the traditional retirement-saving accounts, yet need to save more, learn about other ways to save with your employer or financial service provider including savings accounts, savings bonds, and mutual funds.

Choose to Make Your Retirement Dreams Happen.

Everybody is talking about saving for retirement. Drafting a plan, exploring different alternatives, and finding ways to save more is the talk of the day. It's more than a fad - it's vital to your financial security.

Although you may face different challenges in saving for retirement than those who came before you, you also have many convenient choices. In short, you have the unique power to choose today how you will spend your retirement tomorrow. Take full advantage of it.

Ask your employer about some of the different choices you may have at work. Learn about all of the available options, and most important - take action. Use your power to choose. Take a look at our Top 10 Ways to beat the clock and prepare for retirement.