It's never too late to plan for retirement

Dec 13, 2011

The end of the year is a great time to review your finances. Are you saving enough for retirement?

According to U.S. News & World Report, about a third of all Americans have nothing saved for retirement. Fortunately, it's never too late to start building your nest egg.

On this week's Money Matters, financial commentator Greg Heberlein and KPLU's Dave Meyer look at ways to prepare for "the golden years".

First, consider all sources of cash.

Start with the two pillars, a company pension and Social Security. Add in Individual Retirement Accounts and 401(k) or 403(b) retirement plans. Don’t forget to recognize savings in your own name – that is, besides IRAs or 401(k)s -- stocks, bonds, real estate or other investments. If you plan to supplement your retirement income with another job, estimate that.

Second, consider your expenses.

You can actually sit down and determine your current costs month by month. In Greg's case, since his credit card covers most of his expenses, he’d use the latest year’s total as a starting point. Then add in other major expenses such as property taxes, significant cash gifts to family or charity, insurance bills, mortgage payments and car loans.  

If you plan to do a lot of traveling, or incur any other major expense after retiring, estimate that now and make it a key budget item.

How much income will you need?

A common rule of thumb is to withdraw 4% of your IRA/401(k) balances a year to ensure funds throughout your retirement. Don’t forget that funds in such plans will go on earning even though you aren’t working. Under the 4% formula, $500,000 in a 401(k) would give you $20,000 a year.

So what if you do the math, and the future looks iffy?  

Look for big-ticket ways to save money. For example, doctors and dentists often discount their services for seniors. If travel is important, all sorts of discounts – including many offered through the retirement group known as AARP -- can protect your bank account.

Something of a last-ditch financial tool is a reverse mortgage. You agree to give up your home after you pass on, but you get a steady stream of money throughout. Fees for a reverse mortgage run higher than most other borrowings, but a reverse mortgage can be a useful tool.

Many online sites provide retirement planning for at no cost. Greg likes It may look daunting at the outset, but in the end it may provide a clear path through retirement.

Also, Dave found a lot of useful information at U.S News & World Report.

It's easy to find plenty of good retirement planning advice on the Internet. The hard part is mustering up the willpower to actually use it.