Copyright © 2004 Simpleplanning.com
All rights reserved.
Source: Simpleplanning.com
Planning for retirement should begin as early as possible. With some careful
thought, however, the planning process can be started at any time in your
work career. The secret is to actually put together a plan no matter what
your age- the sooner you start, the more time to you will have to build
your investment portfolio for your retirement income.
The chart below illustrates the value of just one contribution of $5,000
at 9% annual return over a 30 year period.
Build a retirement plan that avoids (or at least aticipates) these key
risks factors.
Inflation
A 2.7% inflation rate can have a large impact on purchasing power. For
example, a retiree with roughly $72,000 of living expenses in 2004 would
find they need nearly twice ($140,000) as much to meet expenses 25 years
later.
Overspending
Clearly, the amount you spend has an enormous effect on how long your funds
will last throughout your retirement. A marginaly higher rate of withdrawal
can significantly decrease your years of retirement income. (Example: A
portfolio of $1 million with a 4% annual withdrawal rate could provide
6 years more retirement income than a 5% annual withdrawal rate.
Investment Risk
Many retirees have taken a conservative approach by investing primarily
in bonds and CDs in order to avoid the risk of the stock market. However,
these conservative strategies can significantly reduce the opportunity
for growing your assets during your retirement years. Though diversification
does not ensure a guarantee against loss, it is an extremely usefull strategy
that enables risk averse investors to benefit from aditional returns generated
by the stock market while minimizing the additional risk
Lengthy Retirement
While you won't know how long you will live, many retirees spend more years
in retirement than they did working.
Medical Expenses
Approximately 50% of Americans now turning 65 will be admitted to a nursing
home at some point in their lives. Full-service nursing home care is expensive
with annual cost estimates ranging from $33,000 to $91,000 depending on
location and services.