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Preparing to Live to 100: Five Money-Saving Steps
Charles J. Whitaker, CSA, CEPP

The likelihood of Americans outliving their savings is increasing.
How can you insure this doesn't happen to you?
(Reprinted from Benefits News)

Think living to age 100 is farfetched? Most people would be surprised to learn that there are more than 82,000 centenarians living in the United States today, and there could be well over 1.4 million by the year 2030. Life expectancy for the average American has reached 85 years, and will continue to increase. It's exciting to think about a long life and a long retirement where you are free to do "what you want, when you want." But what if there is not enough income to carry out an enjoyable life of security and independence? Every worker, regardless of age, should be considering his or her retirement exit strategy now. To assist you, here are five strategies that should be implemented as soon as possible and continued as you move toward retirement.

1. Understand the three "legs" of your financial stool.
Retirement savings is a shared responsibility involving you, your employer and the federal government. The federal government provides Social Security and Medicare, your employer provides employee benefits, and you must provide personal savings. Neither the government nor your employer can pay all the costs for an employee that lives to age 100. All three retirement plan resources must be included for your future financial security.

2. Know how much you need to save to meet specific retirement goals.
Let's assume that, based on your expected retirement lifestyle, you can live on $3,000 per month or $36,000 annually. How much should you save to ensure that amount? First, make a conservative estimate of how much support you'll receive from the government and your employer(s), using financial statements from Social Security and your employer retirement plans. Once you have these two legs of your retirement stool, you can see what you need to personally save to reach your income goal. Say, for example, that after taking your Social Security benefit and employee retirement savings into account, you still need $1,400 in monthly income. Assuming a 6% rate of return, it will require personal savings of approximately $233,340 at retirement to secure that additional $1,400 per month. If your lifestyle requires more or less income, you can adjust your savings needs accordingly, but remember, you cannot save too much money!

Talk to a financial adviser about running a retirement savings accumulation forecast based upon your target savings goals. He or she should also prepare a retirement income "spend down" analysis to see just how much your savings will produce in monthly income. Also, to gain a better understanding of future expenses, talk to your parents or grandparents. Ask about the cost of medicines, health care or nursing homes. Also find out what their property taxes were when they retired and what they are now. Increasing taxes of all types will directly impact the amount of retirement funds required for your later years.

3. Maximize your savings through employer and personal plans.
Some forecasters predict that by 2040 the present tax system will be unable to finance Social Security and Medicare programs as we know them today. What politicians will do remains to be seen, but we already see a trend toward taxing Social Security income. The bottom line is that employees absolutely have to maximize the use of their personal and employer savings and retirement plans and save as much as possible during their working years.

4. Get out of debt and stay out of debt.
Credit card debt is a noose around your neck. Making monthly payments spends your future income, and your money will be gone before you get your paycheck. Helping finance companies get rich will never help you get ahead financially. Begin paying off your debt now, which will give you greater peace of mind. Have a serious talk with yourself, look at how you spend money and begin finding a few dollars every month to accelerate your debt pay-down. By the time you retire you should have no credit card debt, and your home, automobile and other loans should be paid off.

5. Consider buying long-term care insurance.
Living longer makes it more likely that you or a spouse will need long-term care at some point. You have the following choices in deciding how to cope with this possibility: (1) Do nothing, go broke during your elder years and let Medicaid control your life, (2) Rely on your children, (3) Save enough to fund your own long-term care costs, or (4) Purchase some form of long-term insurance to protect your assets and provide more choices for receiving care.

The cost of long-term care insurance is based on age; the longer you wait, the more the protection costs. Employees over age 50 definitely need to make a sound decision regarding long-term care.

If you are serious about building financial security, you must control consumer spending and always, always "pay yourself first." Use your employer payroll deductions to accumulate and save when available. Taking the money out of your paycheck before you see it is the most effective way to save.

A monthly savings plan that you increase as you get raises or pay off debts will help you build a secure financial future and allow you to live with financial dignity during your elder years. Without it, your retirement could mean poverty during what could be the most fun time of your life. – E.B.N.

Author Charles J. Whitaker is a Certified Senior Advisor and Certified Estate Planner. He is president of The Internet Connection Association of Ohio, Inc., a Dublin, Ohio, worksite marketing consulting firm and provider of employee financial communications and an online financial educational benefit program for employees.