Tuesday, October 4, 2011

How to Save Money for Retirement



Finally! It’s time to retire. This is great news if your savings can live as long as you do. Unfortunately, even those who have saved money for retirement may discover their retirement funds will be gone far before they are. The causes of this situation are many.

The number of business bankruptcies is threatening the viability of private pension funds. Many businesses are pushing the responsibility of saving and investing for retirement into the hands of employees. In addition, the vast majority of Americans today are exhibiting an alarming disregard for tomorrow by refusing to save money for retirement and invest in an aggressive manner.

Americans still dream of traveling during retirement or moving to a warmer climate. In fact, 75 percent of workers expect to live as well when they retire as they do now. However, only 25 percent have begun to seriously save money for retirement. Are people planning on inheriting a large amount of money from their parents?

Americans over 50 will spend what they’ve saved and more on health care costs. The lucky heirs who do inherit wealth might spend it far before they retire. This money may seem better suited to raise their own families in style.

The age of retirement may well expire before today’s 35- and 40-yearolds are old enough to enjoy it. Baby-boomers will reach retirement with about half of what their parents had. Active consumerism, housing and education costs are eating up their funds. People seem to think that someone else is saving money for their retirement. The fact is, if they don’t take the responsibility, no one else will.

If the Social Security system survives in its present form, many people will still fall short by at least 25 percent of what they need to maintain their lifestyle. One way to pamper yourself during retirement is to do with less during your early years. This is hard for many young Americans who don’t want to feel bound in to saving money for retirement.

There are two types of retirement funds typically provided to workers by large companies. The most common is the defined benefit plan which is offered by over 100,000 corporations. Workers may or may not contribute, depending on the details of the plan. They are guaranteed a monthly check or lump-sum payment based on their number of years on the job and their final earnings. This usually amounts to an annual income of nearly half the final salary for lifetime employees.

The other type of retirement funds is the defined contribution plan, an optional savings plan to which the employee and the employer may contribute. The employee decides how to invest his portion of the money. The retirement benefit is not guaranteed but depends on how wisely the worker invested.

It’s up to each individual to plan and save money for their retirement. How do you expect to live during those years? The lifestyle you want to have will greatly affect how much money you should save before retirement. No matter what lifestyle you choose, it will probably require more money than most of us imagine.

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