Happy birthday! Will you have the money to retire?

The Bakersfield Californian
January 2016

Many of my friends and I are celebrating our 40th birthdays. It’s a landmark birthday that calls for great parties. It is also the perfect time for us to check our retirement plans.

When it comes to retirement saving, our 40s is a critical decade. It is when most of us will hit our peak earning years. But it is also when we are tackling significant financial goals. We are paying off our student loans, buying houses, raising families and saving money to help pay for our children’s college educations. There is a lot of competition for our money and our retirement plans can easily be sidetracked.

According to a survey by the Employee Benefit Research Institute, about 40 percent of workers between 35 and 54 are not saving for their retirements. About 50 percent of these people have saved less than $10,000. This could result in some mighty grim “golden years.”

But there is some good news. Most of us will have 20 to 25 years left in our working lives. It is not too late to catch up if we plan and are disciplined.

No doubt my friends would rather be thinking about what beer and snacks to buy for their birthday parties than thinking about their looming retirement crisis. But the downside of having a financial planner for a friend is that I will nag them and not let them forget.

And now consider me nagging you, too, as I share the advice I am giving my soon-to-be 40-something buddies:

  • Develop a savings target. Don’t just guess how much you will need when you retire. Develop a clear idea of how much income and liabilities you now have, and anticipated future changes. Do you need to set aside money for your children’s college? Are you in good health? Is your job secure? Will your parents require financial assistance from you? What is your desired retirement lifestyle? Target savings figures are linked to personal circumstances. Some planners recommend workers should set aside eight times their expected final annual salary. Others say workers should be saving 15 percent of their current income.
  • Maximize your savings. Regardless of your “savings target,” save as much money as you can. Participate in your employer’s 401(k) plan, contributing at least as much as your employer’s match. If possible, set aside money in separate IRAs. Create an “emergency fund, or cash reserve that can be tapped to replace three to six months of normal income if you experience a layoff or other financial setback.
  • Keep your hands off. Do not withdraw retirement savings. Often such withdrawals carry hefty tax liabilities. They also make it nearly impossible to reach your savings target. Set priorities, with retirement saving be at or very near the top. Work to reduce your debts. Be disciplined in your spending. Put off buying that new car or larger house. Eat out less.
  • Prepare to work longer. Once upon a time, workers dreamed of retiring in their 50s. As we continue to dig out of the Great Recession that wiped out savings and as life expectancies continue to expand, early retirement is impractical for most of us. If retirement can be delayed until we are 65 or 70, most of us will be in much better financial shape. But don’t assume you will be able to continue doing your 40-something job. What should your “senior” job be? Begin training for that job.

Insurance policies, annuities, etc., are among the many other strategies you can use to help accumulate the retirement funds you will need. At this crucial time in your life, consult a financial planner, accountant or attorney for help with developing a successful plan that will fit your personal needs.