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Retirement can be a great time of life, unless you're broke, says Ben Stein, the award-winning economist and actor who swapped his game-show-host title for that of honorary chairman of the National Retirement Planning Coalition (NRPC). Why the switch? "I am floored by how many people I meet in my age group that have made no preparation for retirement," says Stein, 58. "They seem to think some kind of miracle is going to come along and rescue them. They are not being realistic." It's time for a reality check.
Calculate your income needs. Numerous online calculators, including the one on the NRPC's Web site, can help you figure out how much money you will need from personal savings to supplement social security, a pension or other form of guaranteed income. The calculator will figure the lump sum you'll need to maintain your lifestyle and how much you need to save each year to reach that goal.
Review your asset allocation. The longer you have until retirement, the more risk you can take with your investments. You can afford to ride out the ups and downs of the market in the early years, then shift to a more conservative mix as you approach retirement. But don't abandon stocks altogether even in your sixties. You'll need the growth to fund a long retirement. While the average 65-year-old is expected to live to 83, half of retirees will live longer -- in some cases, much longer.
Rebalance your account at least once a year. Say you start with a 70%/30% stock/bond allocation, but soaring stocks knock things out of whack, to 90%/10%. It may seem counterintuitive to sell winning stocks and buy lagging bonds to get your account back into balance. But this forces you to sell high and buy low to reestablish the asset allocation you originally set -- for good reason, right?
Boost your savings. If you can't afford to contribute the maximum $13,000 to your plan this year -- $16,000 for those 50 and older -- at least save enough to capture your company match, if you have one. Every little bit helps. For example, if you are 30 years old and earn $50,000 a year, and you contribute 8% of your salary to your 401(k) and your employer contributes 3%, you will have more than $1.6 million by age 65, assuming an average 8% return per year. Boost your contribution by just 2%, or $1,000 a year, and you'll have nearly $2 million -- a $300,000 increase that represents a tenfold return on your additional savings.
Work a little longer. Delaying retirement for just three years beyond age 62 could increase your nest egg by more than a third, because you would continue to save for retirement and postpone your withdrawals. It could also hike the steady income you receive from social security and any pension. Finally, waiting until age 65 means you'd qualify for medicare, eliminating the need to buy private insurance. Fidelity Investments estimates that a 65-year-old couple without employer-provided retiree health benefits would need about $150,000 to cover out-of-pocket health-care costs over their lifetime, not including long-term care. Retiring at 60 could add $50,000 to the cost.
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