Saving for retirement: start now

Story and slideshow by MARISSA BODILY

Learn about some tools for saving for retirement.

Aging adults are finding that it is very expensive to retire. The need to prepare for that time of life should start early if people want to be able to live comfortably after they stop working.

The average age to retire is 62 years old and the average amount of time a person spends being retired is 18 years. This means that one needs to be able to anticipate the preparation required to provide for themselves financially for 18 years if they don’t want to spend that time working, according to statistics collected by Statistic Brain from the U.S. Census Bureau, Saperston Companies and Bankrate.

“Start saving early,” said Jared Johnsen, a financial planner at BCJ Wealth Management in Salt Lake City. “Establish the habit of putting away a little each pay check. You’ll never miss it, but [your money] will quickly grow.”

The average retirement age is going up because people are having to work longer to prepare sufficient funds. It is their savings that they are going to live off of when they are no longer employed.

In the early 1990s, the average age to retire was 57 years old, according to a 2013 Gallup Economy survey. In the past, workers could rely on Social Security to take care of them financially. It was a much greater possibility for them to be able to sustain themselves with that money instead of having to prepare and save individually. Unfortunately, workers can no longer rely exclusively on Social Security to give them the life they want after they are retired.

Statistic Brain determined that a married couple over age 65 will pay $215,000 for medical treatment over 20 years. Out of 100 people who started working at age 25, only 4 percent will have an adequate amount of money saved for retirement by age 65 and 63 percent are dependent on Social Security, friends, relatives or charity.

“The average person is not prepared,” Johnsen said. “Ten thousand people turn 65 every day and over 50 percent of them have zero savings for retirement. The average retirement plan balance for all 65 year olds is only $33,000.”

Social Security has been the program that people have depended on to help them get through their retirement years. According to CNN Money’s Ultimate Guide to Retirement, the program is based on contributions that workers put in. While employed, the workers pay money to Social Security and reap the benefits when their turn to retire comes.

Social Security is no longer sustainable because instead of a group of people putting money in and only one person taking it out, the ratio is shifting to one-to-one. Essentially, for every person who puts money in, one person is taking money out.

“Don’t count on living off Social Security when you retire,” said Peter Hebertson, information and referral program manager for Salt Lake County Aging and Adult Services. “We don’t know what is going to happen with your generation.”

The best thing young people can do to prepare for retirement is obtain an education and save money, Hebertson said.

Because Social Security is no longer a guarantee, people are having to become more self-reliant when it comes to planning for retirement and the future.

Social Security is far from perfect, Johnsen said. It won’t be enough to meet all of our needs, it will just serve as a supplement.

Eighty percent of people age 30 to 54 believe they will not have enough money saved for retirement, according to Statistic Brain.

For those people who are getting closer to retirement and are not prepared, Johnsen said, “They should start now. They should also do some calculations to figure out how much money they need to put away to reach their goals. The older they are, the more they need to put away.”

Calculators are available online to estimate how much money you will need for retirement. They can take into account all your living expenses and other expected costs, including leisure.

There are many options available to help save money effectively. “I would first look at an employer-sponsored qualified retirement plan. Generally they offer match contributions that they put in on your behalf so it’s free money,” Johnsen said. He also suggests looking at a Roth IRA because the growth and distributions after you put your money in are tax free.

“Albert Einstein said his greatest discovery was compound interest. It can work for you or work against you. Start saving early and compound interest will be a great tool,” Johnsen said.

“I meet with numerous people every month,” he said. “I met with one individual that started [saving] when he was young and got in the habit of saving and even with his modest income he was still able to accumulate over $2 million for his retirement needs.”

This is an example of someone who was well prepared and made compound interest work in his favor. However, there are people who have not prepared as well.

“I met with a client who is a doctor that is 55 years old and makes over $500,000 a year in income,” Johnsen said. “But he also spends $500,000 a year on lavish travel, fancy cars, a huge home, etc. He asked me to help him save for retirement and was completely embarrassed to tell me that he has only accumulated $30,000 in an IRA. Yet he wants to live off of $250,000 a year when he retires. He wants to retire in 10 years. I told him he basically needs to save every penny over the next 10 years to reach his goal. Or he needs to retire on much less or wait longer to retire. The reality is that he needs to do all three.”

Saving for retirement is a reality that the young and old need to face and prepare for in order to have a comfortable and pleasurable future that continues beyond the working years.