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“Save for Retirement? Are You Kidding?!”

“Save for Retirement? Are You Kidding?!”

Said or unsaid, this article’s title is a typical response to the topic of retirement today. Along with:

  • “I have PLENTY of time, I’m only… [20-something, 30-something, 40-something].“
  • “I’m just too busy to even think about it now.”
  • “I can’t pay my bills as it is!” or the alternative, “I don’t have any money.”
  • “My family will take care of me.”
  • “I know it’s important and I plan to start next… [week, day, year, decade].”


Why is this the most important topic for you to consider today? This applies to men as well as women, but it is a more pressing issue for women. Women often delay or take time out of the earning process to have and nurture children. save-for-retirementWomen often take part-time employment or are compensated at rates lower than men. Women tend to invest more conservatively than men, yielding less diversified and lower overall returns. Women live longer than men.

Each of these elements contributes to significantly lower retirement savings and affordability.

In the past, employers offered defined benefit retirement plans. Today very few do, so the pension that your parents or grandparents relied on for a secure retirement will not be there for you. We now see defined contribution plans (401K, 403B, etc.). If you work for an employer who offers matching funds, you absolutely need to join and contribute to the maximum that qualifies for matching funds. This is free money; take it!

But some employers offer 401Ks into which they do not contribute matching funds. This is not something you want to participate in. While you are able to participate with pre-tax funds, you will not have control over the way the funds are invested. Overhead costs can be high. In this scenario, review your options with your financial advisor. There are better alternatives.

Let’s talk numbers for a minute. More than half (56%) of Gen X households are estimated to be at risk of being unable to maintain their standard of living at retirement. Almost half of older women in 2007 were widows (47%). The median personal income for women over 65 was $14,021. About 3.6 million elderly were below the poverty line. Older women have a higher poverty rate than older men.

Five events are likely to drain retirement savings:

      1. Medical expenses. Medicare is not free and it does not cover many potential expenses.
      2. Taxes. While a person may plan for tax expenses at retirement, few plan for tax increases. Given recent government spending, we can expect tax increases of many kinds in the future. Income, property, and sales taxes come to mind, but are not the only ones that will hit your budget.
      3. Maintenance and repairs. Cars, homes, and appliances need regular maintenance and are very expensive to replace. Costs are almost impossible to forecast or avoid, and they always seem to come at the most inopportune time.
      4. Unexpected expenses. Unexpected travel costs to family events such as graduations, marriages, births, or funerals can damage a budget. The need to care for a distant relative or friend or veterinary costs for a beloved pet can also be a drain. It is easy to find entries for this category. save-for-retirement
      5. Longevity. People are living longer. Concern about outliving their money is a serious issue.

So what to do?

Since none of us come with a longevity bar code on our foot, it just makes sense to plan to take care of our 90-year-old self. To afford life during those so-called “old” years, you have to live on less in your younger years. Early planning is important when it comes to savings. It can make an amazing difference in the outcome of a retirement plan because of the effect of compound interest. For example:

Sam Pam
Invested $2000/yr from age 22 $2000/yr from age 28
Stopped after 6 yrs Contributed 37 yrs to age 65
Total contribution $12,000 $74,000


Both invested in the same way at the same rate of interest. Who will have the most money at age 65? Sam will have $1,235,339; Pam will have $1,235,557. Pam wins by $218, but it cost her an extra $62,000 to be $218 ahead! Sam benefits more from the benefit of early compounding. Oh, and did I mention that these million-dollar accounts can be tax-free on disbursement? Who would like to have that kind of investment waiting for them at retirement? The sooner you start, the better your outcome. Start later and you may never be able to make up the difference.

Sally Ellis, C.P.R.E.S.

Ellis Insurance, Real Estate & Financial Services

 (CA Lic# 0F32325, DRE #01340041)

 (661) 713-8210

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28040 Industry Drive, Valencia, CA, 91355
Phone: (661) 255-3112
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