Savings for Retirement
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
How Optimistic Are Today’s Investors?
If you plan to retire one day, you may be interested in the following facts. A recent national survey found the most investors don’t have a specific retirement goal, nor do they expect to get all the Social Security or Medicare benefits they are re-entitled to when they retire. How will Americans today and in the future afford retirement? These were among the issues raised in one recent (brain-storming) meeting. Unlike other indices, such as the Consumer Price Index and the Consumer Confidence Index, which reflect consumer actions and opinions on spending and consumption, the Index of Investor Optimism is the first effort to interpret the voice of the American investor. Specifically, the Index found:
Nearly ninety percent of investors who haven’t retired believe they will not get all of today’s Social Security benefits in the future. One in four (twenty-six percent) believe they will get no Social Security benefits when they retire.
Give the anticipated shortfall, one would imagine that these investors would be actively planning to replace this income. Yet, ironically, when asked if investors had a specific retirement goal, more than half (fifty-four percent) said they didn’t. According to Index, most said they are just trying to do the best they can.
With Americans living longer, many can expect to spend up to 30 years in retirement. Hat’s more, beginning in the year 2019, the Social Security trust fund assets will decline as payments to retirees begin to exceed the revenues paid into the system by workers. With revenues only covering three-fourths of benefit costs, the trust fund will be depleted by 2029 if the current system is not changed. Future retirees are realizing today that neither the government nor employers can ensure their financial independence they must take this responsibility for themselves.
So just how much does one need to retire? Studies show that most Americans will need approximately seventy-five percent of their pre-retirement income in order to maintain the lifestyle they’ve grown accustomed to while employed. It is estimated that sixty-two percent of that income needs to come from personal savings. The message is clear: if you haven’t yet begun to save, start now. If you’ve already started by saving, there’s a good chance you’ll need to save more. Either way, assuring that your assets will provide an income stream that will last through retirement years requires a well thought out plan and wise investments.
TAP ALL RESOURCES
If you haven’t saved at all for retirement, or haven’t saved adequately, there are many resources you can tap to help meet retirement income needs. For example, look at your employer’s retirement plan options. Many companies offer 401 (K) programs that allow money in the program to accumulate tax-deferred. Additionally, some companies will match all or a portion of your 401 (k) contributions. If you are self-employed, you should consider qualified plans such as simplified employee pension plans (SEP-IRA’s) which offer attractive tax advantages. And don’t forget an Individual Retirement Account (IRA) or Roth IRA investigate the difference between IRA and Roth IRA advantages and disadvantages of each. Refer to my article in Pakistan Link. Not only should you make regular contributions to an IRA, you should make sure those assets are wisely invested. Remember, whether you are eligible for an IRA deduction or not, assets within an IRA will grow tax deferred or tax-free in case of Roth IRA.
Finally, explore all investment options to find the right mix of safety and earnings potential for your personal goals. Consider stocks, mutual funds, unit investment trusts, reits and others.
START EALY AND SEEK ADVICE
Of course, the earlier you start a retirement savings program, the better off you are likely to be in your golden years. In today’s complex investment and tax environment, many people turn to their investment executive and tax advisor for help in developing a disciplined, integrated savings and investment plan. An investment executive can help analyze your current financial situation, and determine how much you’ll need to save for retirement. Your tax advisor can counsel you on the tax implications of investment decisions. It is also a wise step to contact the Social Security Administration for a copy of your earning and benefits estimate statement.
Financial professional can work with you to develop a plan today designed to help assure your future financial independence.
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
-----------------------------------------------------------------------------
