| Sargent & Lundy Savings Investment Plan |
| THE NEW FACE OF RETIREMENT |
| The following excerpts are from an article in the April/May
199 issue of "Your Money" magazine. The opinions of the author,
John Rubino, may or may not reflect those of the SIP Committee.
Welcome to the world of retirement planning for the 21st century, in which you take responsibility for your own financial future and where your job doesn't necessarily end on your 65th birthday. You've probably heard or read about a lot of retirement panic buttons being pushed lately. In fact, says Michael Stein, author of "Prosperous Retirement: Guide to the New Reality", retirement isn't even a single thing any more. Instead, for most 21st-century retirees the final third of life will be divided into three stages, each with its own character and cost structure. In the initial, active phase, says Stein, you'll want to fulfill some of the fantasies that simmered on the back burner when work and kids were paramount. Whether that means cruises, scuba lessons, or strolls down the Champs-Elysees, chances are you'll spend more during this stage than you do now. After your thirst for adventure is quenched comes a more stable, lower-cost time of family, friends, hobbies, and part-time work. Then comes the final stage, when failing health causes you to withdraw into a progressively smaller world. The whole process might consume 20 to 30 years, or a third or more of your life - and cost as much as any other period of similar length. The conclusion: To enjoy such a long, varied period of life, you've got to take responsibility for accumulating enough money. Start by looking at your financial strategy as a four-pronged approach. Your retirement income will be derived from among the following: tax-deferred savings like 401(k) and profit-sharing plans; taxable savings like mutual funds, bonds, and bank savings products; pensions or defined-benefit plans; and Social Security. It's important to get started on the half of your portfolio you have control over - your savings and investments. Here's what you can do now - no matter what your age - to carve your place in the retirement landscape of the 21st century. If you're 25: Start investing. According to the Investment Company Institute, mutual-fund assets in retirement plans rose 28% in 1997 to $1.6 trillion. And the share of mutual-fund assets held in retirement accounts remained near 35%. Smart investors know that equities equal growth, and young investors can take greatest advantage of it through the power of continuous compounding. It works like this: When something grows at a consistent rate, it doubles in a set period of time. At 10% a year (which is about what common stocks have traditionally earned in nontaxable accounts), a sum doubles in just over seven years. Since successive doublings are on an ever-growing base, given enough time to run, compounding will produce some truly surreal results. For instance, $10,000 growing at 10% will become $400,000 in 40 years. Since that's how long you have until age 65, you can cement the financial side of your retirement problem by putting $10,000 into a well-diversified stock portfolio in a tax-deferred account and forgetting about it. If $10,000 is out of your current reach, open an IRA or 401(k), and invest whatever you can spare. Invest aggressively. Generally speaking, the longer your time horizon, the more aggressively you should invest. That means a well-diversified portfolio of growth stocks, which can be achieved through index funds or no-load small-cap growth funds. Automate your savings. Besides your 401(k), which takes money from your paycheck, there are several other ways to automatically (i.e., painlessly) add to your nest egg. Most mutual funds have automatic- investment programs, for instance, that pull $50 or so out of your checking account each month. And many stocks offer dividend-reinvestment plans, which use dividends to buy more stocks. Consider a Roth IRA. A Roth differs from a traditional IRA in that it doesn't give a tax break on money you put in, but doesn't tax you on what you take out. "The younger you are, the better deal this is," because you'll have more time to accumulate, says Tom Grzymala, vice president of the National Association of Personal Financial Advisors. Start acquiring life skills. "Some people manage to play basketball later in life, but not many," says Stein. "But people can golf into their 80s. So consider how long you'll be able to use a new skill." If you're 40: Really start saving. You're probably at the beginning of your biggest earning years, so if you haven't socked away as much as you should, now's the time to get serious. Begin by maxing out your 401(k) and IRA, and consider starting a Roth. Also look into variable annuities, which allow you to defer taxes and have no limit on contributions. The original variables were complex and costly, but the new generation and cheap, solid and simple. Stay focused on stocks. You're still a long way from needing the money, so continue to aim for growth, in the form of S&P 500 index funds and high-quality individual stocks. Reinvest all dividends. Hire a financial planner. At this point, mistakes become very costly, and expert help becomes that much more valuable. A good financial planner can make sure your investments, insurance, and tax planning are all they should be. Get disability insurance. Without your paycheck, both you and your family will be in big financial trouble. So make sure you're covered in case you lose the ability to earn a living. Get healthy. If you're sick, all the money and friends in the world won't put a smile on your face. So educate yourself on the latest fitness wisdom, and take the proper steps to stay healthy. This also means forming a relationship now with a good doctor. Start planning your late-life activities. What will you do, a decade or two hence, when you have eight more free hours a day? Will you make music? Then learn an instrument now. Play golf? Then get your handicap down to the point where the game is fund. And start cultivating tomorrow's friends today. Twenty-somethings usually have plenty of friends, but as the decades progress there comes a narrowing to people you know through work and kids. When the job ends and the kids move away, the void that's left can seem unfillable. So cultivate some new relationships now, with the intention of expanding them when they're needed. If you're 55: Get long-term-care insurance. Medicare's dirty little secret is that it doesn't cover long stays in nursing homes. At an average of $30,000 a year, such stays have probably emptied more nest eggs than all the junk investments in the world. For a healthy 55-year-old, long-term-care insurance can be as low as a few hundred dollars a year. Become computer literate. In today's economy, there's seemingly unlimited demand for people who can use, fix or program computers. But just as important, the Internet is a window to the world that requires little physical dexterity and connects you to virtually anything that interests you. Start planning for lighter and/or more enjoyable work. Find out if your current job can be scaled back. In this tight job market, companies are loath to lose good people and will often be very flexible. Or consider a switch to a more interesting field. Operation ABLE, for instance, places Chicago-area retirees with local companies on both a permanent and temporary basis, with great success. Get a pet. It doesn't matter whether a retiree's social network is human or not - as long as there is companionship. Furthermore, walking a dog keeps you in shape and opens social opportunities that don't otherwise exist. If all of the above - with its stress on money, work, friends, and hobbies - sounds suspiciously like regular life, then maybe that's the point. Instead of a withdrawal from life, retirement in the new century is just the opposite: a time when you take what you've learned and really use it. |
This page updated on 5/17/99