| Sargent & Lundy Savings Investment Plan |
| RETIREMENT SAVINGS VS TUITION BILLS |
| The following excerpts are from an article in the April
3, 2000 issue of "Newsweek" magazine. The opinions expressed
by the author, Jane Bryant Quinn, may or may not reflect those of the SIP
Committee.
For many boomers, there are two pressing questions: When can I retire, and how do I pay those stiff tuition bills? Questions about retiring early lie thick on the ground. But for boomers with children, so do tuition bills. Even with a fat 401(k) in hand, you have to wonder if you're going to have enough. In real life, we're actually growing more inclined to stay at work, says Joseph Quinn, economics professor at Boston College and fellow of the Employee Benefit Research Institute (EBRI) in Washington, D.C. Until the mid-1980s, people retired at ever-younger ages. Then that trend came to a sudden halt. Today it's financially appealing to hold a job, Quinn says. Older people have more retirement options than they used to. Congress has just decided to pay you your full Social Security benefits at 65, on top of whatever else you earn. Fewer private retirement plans encourage an early out. The new cash-value pensions actually force you to work extra years for comparable retirement pay. If you've had a huge stock-market windfall, you may be ready for life on the outside. But according to a 1999 EBRI survey, 68 percent of the people now at work plan to hold paying jobs after they "retire." Of these, only 37 percent said they'd need the money. Nearly two thirds said they liked work and wanted to stay involved. Still, the "enoughness" questions nag: What will I need, and how will I pay? Here are some answers from planners around the United States: Is there a quick way of guessing whether I can retire? Planners suggest that you take 5 or 6 percent of your total retirement savings and add any other expected income - for example, an early-retirement pension or earnings from a part-time job. If you can live on that for a year, you can probably wave good-bye to the job you're doing now. In each subsequent year, you'd take the same amount from savings, plus an increment for inflation, says planner Jeff Feldman of Rochester Financial Services in Rochester, N.Y. This rule of thumb might not work, however, if stock prices bomb for two or three years right after you retire, says planner Karl Graf of Graf Financial Advisors in Wayne, N.J. The value of your remaining investments might not cover you for life. Here's another idea: ask an insurance agent how much you'd get per month if you used all your liquid assets to buy an annuity that paid you a monthly income for life. I'm not suggesting that you buy the annuity. But you'll get a ballpark feel for what your current savings might produce. For your back-of-the-envelope calculation, two other items come to mind: health insurance (if you can't get retiree coverage, you may be chained to your job) and the 10 percent penalty for tapping retirement money too soon. There's no penalty for taking funds from a 401(k) if you're at least 55 when you leave your job. But you normally can't touch IRAs penalty-free until 59-1/2. What level of retirement income should I be saving for? A reasonable guess is 70 percent of what you're earning now. That's from Kenn Tacchino and Cynthia Saltzman, professors at Widener University in Chester, Pa., who study retirement expenses. You'll probably spend more than that when you first retire, in a flurry of travel and fun. But as you age, expenses ebb. People 75 and up spend an average of 27 percent less than people 65 to 74, Saltzman says. Remember, most retirees already have their stuff. They don't buy new furniture, they often live in a mortgage-free home and they keep their cars longer than they did when they drove to work. You'll spend more on health care, but your living expenses will drop by much more than your medical bills will rise. How do I save for retirement and college at the same time? Planners say save for retirement first. You can borrow for college (or your kids can), but you can't live on loans in your old age. When tuition bills loom, parents tend to stay in the work force. If you have to retire, you income will drop and your kids may get extra college aid. Families below the $50,000 mark almost always get help, except from very low-cost schools, says Ray Loewe of College Money in Marlton, N.J. By contrast, colleges rarely help families earning $100,000 or more. In general, older parents are reasonably well prepared, says planner Denise Leish of Money Plans in Silver Spring, Md. They usually have fewer children, higher salaries and more savings than couples who had children young. They're also more likely to receive an inheritance just when their kids are ready for school. Should I convert my term insurance to permanent cash-value coverage? Most planners advise that you stick with term as long as your family depends on your paycheck. It's still reasonably priced, and you need far less of it than you did 20 years ago. Soon boomers might want cash-value insurance to cover future estate taxes. But Congress might cut that tax. You have a few more years to decide. |
This page updated on 4/10/2000