5 Fundamentals for a Secure Retirement

Suzanna De Baca -- Expert Business Source, 1/18/2008 7:00:00 AM

As Baby Boomers near retirement, many are contemplating what steps they need to take in order to prepare for a secure future. In the past, retirement experts stressed the importance of Social Security, pensions, and personal savings, but today’s financial authorities assert that those three components are not enough anymore.
As employer-sponsored pensions are increasingly phased out or dissolved and as Social Security’s future is in question, those preparing for retirement need to look beyond the traditional answers.

“I see a five-legged stool,” says financial author Jane Byrant Quinn in an Oct. 2007 AARP Retirement Planner article entitled “Money for Life.” Quinn suggests that Social Security (which she thinks will remain for Baby Boomers), personal savings, freedom from debt, health insurance, and realistic work goals are all critical for achieving retirement goals. She continues, “If you have a pension, congratulations—that's icing on the cake.”

Thomas J. Stanley and William D. Danko, authors of the best-selling book The Millionaire Next Door espouse a similar philosophy, noting that most Americans who have amassed at least $1 million have done so through common sense, hard work, regular savings, and a frugal, debt-conscious lifestyle.
Here are tips on how to maximize the five elements necessary for a comfortable and secure retirement:

Social Security:

You do not have to take Social Security when you first become eligible at 62, and the longer you wait the more it will pay. Quinn notes that, “For each year you wait after your full retirement age, your starting check rises by 8 percent.” (At age 70, this benefit stops.)

Personal Savings:

A generally accepted rule of prudent financial planning has always been to save at least 15% of your income. Americans as a whole have a negative savings rate, according to U.S. Census data, but if you want to live well in retirement you need to start moving your annual savings toward this percentage. Your savings can be invested in a qualified retirement account, a taxable savings or investment account, or in other typed of assets – the key is to save regularly. As you near your target date to exit the work force, a more conservative approach to investing is appropriate.

Freedom from Debt:

Quinn, Stanley, and Danko all suggest that eliminating debt is key to a secure retirement. While there are many schools of thought on the topic of mortgages, many financial planners recommend paying off your house, or at least encourage you to quit borrowing against it. Pay down credit cards or other consumer debt. Interest is an unnecessary expense that will drag you down when you’re living on a fixed income, and you will need to become accustomed to living on savings, not future earnings.
Health insurance.

Health care is becoming increasingly expensive. Quinn cautions, “If at all possible, don't retire without health insurance before you have Medicare.”

Take a good look at your current coverage and create a strategy for how to keep or transfer your coverage when you retire; if your company does not extend retiree health benefits, start shopping for an individual policy early on.

As simplistic as it sounds, stay as healthy as possible. You owe it to yourself to be fit, eat right, stop smoking, and reduce stress; additionally, good health may well save you money in the end.

Post-retirement Work

Many Boomers and seniors are capable of working and continue to have professional interests or even hobbies that translate into additional income. While you may end your traditional career, supplementing your retirement with funds from part-time employment can provide you with additional spending money or savings. For some this will be required in order to make ends meet; if you start planning early, however, continuing to work in retirement should be a choice, not a necessity.

Combining savings, hard work, and good health insurance with smart decisions about Social Security and debt will allow you to move toward a safe and sound retirement. Consult a financial advisor to determine the best ways to structure and implement your overall retirement plan. Start planning now.

Suzanna de Baca is President of Private Capital Solutions Group. She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667. Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.
PAS is a member FINRA, SIPC.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.