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Retirement: When Should You Start Saving?

How to Calculate Your Financial Needs

Even if you're not working you can still save for retirement based on your spouse's earnings. A Spousal IRA allows for contributions of up to $5,000 for 2,009 ($6,000 if you're over age 50 as of 12/31/09) if you file a joint tax return and your spouse's earnings are more than the total IRA contributions for the year for you and your spouse. If neither one of you is covered by another pension plan, then IRS regulations allow all your contributions to a Traditional IRA to be deductible on your tax return. See your tax preparer for details.
When should you start thinking of saving for retirement? As with other financial decisions, it's never too early to start saving. Why not sit down to resolve the issue of retirement savings now that you're already thinking about it? The earlier you start, the more your money may grow over time. Of course, everyone's money situation is different, so you should review your particular situation with a qualified financial advisor. But first, think about this: According to the Centers for Disease Control, the average life expectancy of an American is 78 years. That means, if you retire at age 65, you're likely to live another 13 years.

Try to Calculate Your Needs

There are ways you can help protect your investments and increase your chances of surviving a bear market. Since no one knows whether it will be a bear (down) or bull (up) market when you retire, consider preparing for the worst as you get closer to retirement age. One way may be to diversify by moving investments into a variety of asset classes, such as large, medium and small U.S. and international companies, as well as into conservative bonds and savings plans. This could help cushion your finances if the market starts to turn down, and may provide a higher income stream during retirement.
Many people underestimate the difference between how much they will receive at retirement through such sources as Social Security, pensions and investments, and how much they will need to live a chosen lifestyle. You'll probably want to consider your current age, the age at which you wish to retire, your annual income, your spouse's income, the amount you currently have saved in investments, expected debts (mortgage, children's college education) after retirement and the percentage (such as 70 to 80 percent) of your pre-retirement monthly income you can live on after retirement. Ask your financial advisor to help you with the calculations.

Need More than Social Security

One way to save for retirement is to have money automatically deducted from your paycheck. As soon as you are earning a stable income, consider asking your employer to deduct $20, $50, $100 or whatever amount you choose each week from your paycheck. You could deposit that money into a savings account, IRA, 401(k) or other retirement plan, where it may grow for you. Just don't take out so much that you can't pay your bills or buy groceries. Over time, you'll be surprised how fast your savings will add up. If you save $100 per week, that's $5,200 in one year!
Social Security may have been enough to live on in earlier years, but with today's expenses, it may not be enough for you. Social Security pays roughly 40 percent of the value of your pre-retirement income. Consulting your Social Security statement, which is mailed to you once a year, is probably a good idea in order to see just how much you've contributed over the years, how much in benefits you've earned, and how much will be distributed after retirement.

Take Advantage of 401(k)

A common method of saving for retirement is a 401(k) or similar plan offered by employers. You might want to ask your company if it offers a retirement plan and what the average rate of return is. Savvy workers will often sign up for the plan right away and have the maximum percentage of salary withdrawn. It may hurt a pinch when you see this portion of your wages missing from your paycheck each week, but soon enough, you probably won't miss it. You can be comforted to know that your money is safe and growing for when you'll need it later.

Aggressive Versus Conservative

Consider your current age when planning your retirement strategy. The younger you are, the more risk you may be able to take with your investments. If you're young and have many years of earning ahead of you, you potentially have more time to recoup any losses. If you're older, it may be better to increase the amount you save and be more conservative with the types of investments you choose. Your financial advisor can help you decide what is right for you.

Keep Calculating

It's probably not a wise idea to assume that if you've taken time this year to calculate what you'll need for your retirement, you'll get a magic number and you'll be done. Over the coming years of your life, many factors can change and evolve, likely requiring you to reevaluate your needs. Your marital status may change, or you may switch jobs, be unable to work, or have a change in your economic situation. Investment market returns fluctuate, so inflation could lower the value of what you've already saved. You might want to make a point of recalculating your savings and financial performances regularly, so that you'll be better prepared for your golden years.

SunTrust is unable to offer tax or legal advice. Please consult with your tax and legal advisors.




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