Making Retirement Magical

  Most of us look forward to the changes that will come with the magical time of retirement. But it can mean changing your lifestyle in ways you never planned.

  Studies have found that most people do not save enough-or don’t save at all-for retirement.

  In the past, you may have counted on salary increases to help beat the race with inflation or rising expenses. But once retired, your income may grow only by occasional Social Security cost-of-living increases.

  So how do you prepare for a good lifestyle in a retirement that may be decades away?

  First, contribute as much as allowable to a corporate retirement plan if working for someone else, or a self-funded pension plan if you’re your own boss.

  Then examine your anticipated income and expenses and draw up a realistic budget for retirement.

  When you have an accurate picture of your financial capabilities, consider how your lifestyle works with or against the budget. Some retirees live life to the fullest and spend lavishly on travel and entertainment. Others are exceedingly cautious, scrimping and saving whenever possible.

  Try to avoid either extreme. Remember that while budgets should not be created or revised on a whim, neither should they force you to deny yourself unnecessarily.

  Take seriously the power of compound interest, suggest Dwight R. Lee and Richard B. McKenzie in their book Getting Rich in America.

  A person age 22 who starts a job at $30,000 a year and gets a real-wage increase of only 1 percent a year thereafter will have $1.2 million at age 65 by saving 10 percent of his or her income and getting an inflation-adjusted annual return of 8 percent. (This is the average rate of return for the stock market over the past 75 years.) Or the total will be “only” $525,000 if the annual return is 5 percent.

  When you have kids in school and a mortgage-and feel you deserve a vacation now and then-how do you save 10 percent of your income?

  Resist temptation, the authors say. Distinguish between your needs and your desires.

  Do you really need to go to a restaurant to order filet mignon, or could you prepare it at home?

  The authors found that 37 percent of the 4 million millionaires in the United States buy used cars. A 2-year-old car, they note, sells for about two-thirds of what it would cost new.

  An even simpler suggestion from Consolidated Credit Counseling Services: set aside just $5 a day-perhaps by brown-bagging your lunch instead of eating out-and it will grow to about $22,400 in 10 years at 4 percent interest.

  The basic rule for saving is to figure out how much income is needed and how much must be saved yearly to achieve that goal by the age you plan to retire.

Women’s higher retirement hurdles

  Women appear to have the odds stacked against them when it comes to retirement.

  Women live, on average, seven years longer than men do, while earning 75 cents for every dollar a man earns. They spend, on average, 11 years out of the work force, caring for children or parents.

  Yet at some point in their lives, most women will be their household’s sole financial decision-maker-often when household assets are at their peak.

  Few older women have a pension, and those who do receive just 40 percent of what men do. For these reasons and others, women are 60 percent more likely than men to spend retirement in poverty, according to 9 to 5, a Milwaukee organization for working women.

  These statistics are changing gradually, but women must save more and be more disciplined to achieve the same kind of retirement as men.