That’s right. The recession is making clear what we’ve suspected for a long time. The concept of not working and embracing leisure for the last third of one’s life isn’t practical for most people.

Put it this way: Survey after survey has shown that a majority of aging baby boomers plan on working in retirement. Well, that plan is coming true.

Financial safety net
Economic downturns often accelerate change. For instance, in the latter part of the 19th century, the country moved from a rural, farm economy to an urban, industrial one. The wealthy associated old age with leisure, but for everyone else it usually meant involuntary unemployment and a humiliating dependence upon family, charity or community organizations for shelter and food. Policy reformers agitated for some kind of a financial safety net for the nation’s impoverished and isolated elderly.

Not much happened until the Great Depression. It was an economic disaster for families, especially the elderly “as they watched their hard-won assets vanish, and with them their hopes for an independent and secure old age,” write historians Carole Haber and Brian Gratton in “Old Age and the Search for Security.” (Sound familiar?) Traditional middle-class objections to a national safety net crumbled with the Depression. Social Security became law in 1935.

“The real or incipient collapse of individual households helps to explain the widespread popularity of Social Security,” say Haber and Gratton.

Our image of retirement is still shaped by the early decades after World War II. The elderly poverty rate plunged thanks to Social Security. Older Americans gained universal health care coverage with Medicare in 1965. And Corporate America offered workers defined-benefit pension plans based on a salary and years-of-service formula.

It was in these years that retirees developed a distinct lifestyle captured by the mass migration to Sunbelt communities, traveling in RVs and bus tours, spending long mornings on the golf course and other recreational pursuits. The development of modern retirement is a great social achievement of the 20th century.

But in the 21st century, the underlying economics of retirement are changing.

Living longer, working longer
On the positive side, we’re living longer. Average life expectancy is now about 78 years, up from 61 years when Social Security became law. We’re healthier, too. Disabilities among the elderly are declining, thanks to a combination of healthier lifestyles and medical advances.

A seismic shift in the economy and workplace is making it easier for an aging population to labor longer. An information- and services-dominated economy will ease the transition to longer working lives. Simply put, toiling away on a computer in medical diagnostics or government bureaucracy is far less demanding than manning an auto assembly line or mining for gold. The rise of an economy based on intangibles and longer life expectancy is behind more than a decade’s worth of scholarly research, aging conferences and popular press articles trying to redefine retirement.

Retirement savings wiped out by crisis
The day of retirement reckoning is here for less happy reasons, too. For the second time in eight years, savers have watched in horror as their 401(k)s, 403(b)s and other retirement savings were hit with sharp declines. This time around, the household wealth destruction is even greater because of the nationwide fall in home prices. For instance, from the last quarter of 2006 through the third quarter of 2008, the real value of homes and household holdings of stocks plummeted by $5.6 trillion, according to a recent report by Hoisington Investment Management Co. in Austin, Texas. It predicts that the wealth loss may exceed $10 trillion when the fourth-quarter figures are calculated.

Indeed, the current pension system is making everyday retirement insecurity worse. Employers have embraced defined-contribution savings plans like 401(k)s. But 401(k)s don’t deliver a steady stream of income during one’s golden years. There’s also plenty of evidence that workers with access to defined-contribution savings plans aren’t taking full advantage of them, either.

But wait, there’s more: The health insurance system is widely acknowledged to be broken and is a strain on family finances. Even with Medicare coverage after age 65, the elderly are finding it necessary to pay for a greater percentage of their overall medical bill.

The comedian George Burns used to get a laugh saying, “Don’t stay in bed, unless you can make money in bed.” It’s no longer a joke. Many aging workers simply can’t save enough to create a solid foundation of savings that will maintain their standard of living in retirement.

Postponing retirement
The solution: work longer. After all, earning a paycheck in your latter years can make a huge difference in retirement living standards. Pocketing even a slim income often allows retirement portfolios to compound over a longer period of time.

Take this calculation by economist Robert Shackleton of the Congressional Budget Office, which posits a married couple is in their early 60s earning $100,000 pretax a year. They’ll need nearly $66,000 a year after taxes to replace 80 percetn of their preretirement income. (The 80 percent is a standard rule of thumb when it comes to making this kind of retirement calculation.) If both retire at age 62, they’ll receive more than $25,000 in total Social Security benefits and require a portfolio of at least $891,000 to generate the income they need to live the good life through their normal life expectancy. (The calculation comes from a paper written several years ago, so the Social Security numbers will have changed a bit over the years. Yet the basic calculation remains true.)

But if our couple waits until age 66 to retire, their Social Security benefits go up and the time they need to bank money shrinks, so $552,000 in savings will suffice. Retire at age 70? All they require is a portfolio worth some $263,000. And so on.

More than making ends meet, work is physically and mentally energizing. It keeps the mind active and dementia at bay. For many people, the workplace is a social environment, with birthday celebrations and coffee klatches. To be sure, you may want to say goodbye to your current office mates for the last time. But that doesn’t mean you won’t want to work.

Of course, not all senior citizens will be physically and financially healthy in retirement. Especially vulnerable are less educated workers. So are single-parent households. Both groups are far less likely to have a pension plan and own their home. And then there’s the lingering problem of ageism: Some employers are still hostile to aging workers with sagging middles and graying hair.

Nevertheless, the recession has made it clear that retirement and work will be woven into a new cloth for many Americans. The challenge for all of us — employees and employers — will be making the best of the situation.

Copyright © 2009 The McGraw-Hill Companies Inc. All rights reserved.

Though it’s never too late to start, the sooner you begin saving, the more time your money has to grow. Gains each year build on the prior year’s – that’s the power of compounding, and the best way to accumulate wealth.

2. Set realistic goals.

Project your retirement expenses based on your needs, not rules of thumb. Be honest about how you want to live in retirement and how much it will cost. Then calculate how much you must save to supplement Social Security and other sources of retirement income.

3. A 401(k) is one of the easiest and best ways to save for retirement.

Contributing money to a 401(k) gives you an immediate tax deduction, tax-deferred growth on your savings, and – usually – a matching contribution from your company.

4. An IRA also can give your savings a tax-advantaged boost.

Like a 401(k), IRAs offer huge tax breaks. There are two types: a traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals, and, if you qualify, your contributions may be deductible; a Roth IRA, by contrast, doesn’t allow for deductible contributions but offers tax-free growth, meaning you owe no tax when you make withdrawals.

5. Focus on your asset allocation more than on individual picks.

How you divide your portfolio between stocks and bonds will have a big impact on your long-term returns.

6. Stocks are best for long-term growth.

Stocks have the best chance of achieving high returns over long periods. A healthy dose will help ensure that your savings grows faster than inflation, increasing the purchasing power of your nest egg.

7. Don’t move too heavily into bonds, even in retirement.

Many retirees stash most of their portfolio in bonds for the income. Unfortunately, over 10 to 15 years, inflation easily can erode the purchasing power of bonds’ interest payments.

8. Making tax-efficient withdrawals can stretch the life of your nest egg.

Once you’re retired, your assets can last several more years if you draw on money from taxable accounts first and let tax-advantaged accounts compound for as long as possible.

9. Working part-time in retirement can help in more ways than one.

Working keeps you socially engaged and reduces the amount of your nest egg you must withdraw annually once you retire.

10. There are other creative ways to get more mileage out of retirement assets.

For instance, you might consider relocating to an area with lower living expenses, or transforming the equity in your home into income by taking out a reverse mortgage.

A growing number of financial planners are rethinking the conventional wisdom. (Remember the old adage that you should subtract your age from 100, and devote that percentage of your portfolio to stocks?) Here are five new rules to consider:

Separate your investments into different pots. Often, investors in retirement lump all of their money together, with which they pursue one strategy, says Eric Bailey, managing principal of Captrust Advisers in Tampa. His firm, which works with pensions, endowments, and high net-worth individuals, takes an approach ripped straight from the institutional investors’ playbook. Clients’ money is separated into three categories: Short-term funds reside in very low-risk investments, such as high-quality bonds; intermediate-term money goes in a balanced mix of stocks and bonds–such as a 50-50 or 60-40 split; and long-term investments starting with five-year time horizons are heavier on stocks. “This way, you can take advantage of a market sell-off with your long-term investments and you’ll avoid needing to liquidate investments when stocks are down,” Bailey says.

Don’t reach too far for yield. Cash may be king in this market, but decent yields are hard to find. Treasuries present the ultimate in safety, but the pay is meager: The one-year bill currently yields just 1.1 percent and the five-year 2.2 percent. Unfortunately, if you’re looking for a bigger payout, you’ll have to take on some risk. Says Oliver Tutt, managing director of Newport, R.I.-based Randall Financial Group: “You’ll have to make a trade-off somewhere, particularly if you’re dealing with large amounts of money.” Stick with quality: If you’re considering a bond fund, for example, be sure to look under the hood at its various holdings and review the fund’s prospectus to see what types of bonds–and credit ratings–it targets. “Quality is always important, but more than ever it is now,” says Bill Walsh, chief executive officer of Hennion & Walsh, an asset management firm based in Parsippany, N.J. “Know what you’re buying.”

Make it a muni. Government bonds are airtight when it comes to safety, but their yields are near all-time lows. As an alternative for retired investors in the upper tax brackets, municipal bonds are worth considering. With munis, investors get the benefit of tax-free income, less volatility than corporate bonds, and, theoretically, more safety. “Right now, there’s more value in munis than almost every other area. But be sure you know the issuer,” says Walsh. Among munis, he recommends high-grade, general-obligation bonds and essential-purpose bonds such as the sewer authority. “Stay away from things like nursing home bonds, which could go out of business,” he says. Walsh prefers single-issue bonds over bond funds, which “will work, but you have to be careful,” because there is no set maturity date, no set yield, and managers can sometimes buy outside of that asset class.

Go for dividends. It’s a no-brainer that quality matters in a market like this. But how do you know if a stock is “quality”? Dividends are one indicator. That’s because dividend income–which is essentially a portion of company profits paid out to shareholders–helps offset fluctuations in a stock’s share price, creating a cushion during turbulent markets. “During trying times, dividend-paying stocks tend to do well,” says Paul Alan Davis, portfolio manager of the Schwab Dividend Equity Fund. Davis also looks for companies on solid footing, which have plenty of cash and aren’t in “financial straits.” During the first 11 months of year, Davis says, the S&P’s dividend-paying stocks fell by roughly 36 percent; meanwhile, nondividend payers were down about 45 percent. You’ll find those dividend payers in more developed industries such as consumer staples, utilities, and healthcare. Examples include Philip Morris, Coca-Cola, General Mills, Bristol-Myers Squibb, and Pfizer.

Consider “alternatives”: This asset class, which is used most often by pensions and other institutional investors, runs the spectrum from commodities and annuities to real estate. But individual investors can also use them to dramatically reduce volatility in their portfolios, says Gary Hager, founder and chief executive of Integrated Wealth Management in Edison, N.J. He likes real estate investment trusts, or REITs, which have historically provided a smooth ride for investors. A sample portfolio from 1978 through 2007 shows that putting 10 percent of equity holdings in U.S. REITs improved returns by 0.3 percent and cut volatility by 0.9 percent, compared with investing in stocks alone, according to The Only Guide to Alternative Investments You’ll Ever Need: The Good, the Flawed, the Bad, and the Ugly. Other alternative investments to consider include commodities and inflation-protected securities, both of which are offered in ETF form.

• When can I retire?
• How much savings do I need for retirement?
• How much can I spend in retirement?

The most important of the three questions, from a retirement planning perspective, is the last one – How much can I spend in retirement?

How much can I spend in retirement?

How much you can spend in retirement, is based on how much you have saved for retirement, divided by an annual safe withdrawal rate of between 3% to 4.75% depending on your age at retirement.

A better, and the more important, question to ask is “How much do I need to spend in retirement?” To answer this question you will have to create a retirement budget.

Creating a retirement budget, insures that you will not run out of money during retirement, and it allows you to answer the other two retirement planning questions.

How much savings do I need for retirement?

How much savings you need for retirement, depends on how much you spend in retirement (your annual retirement budget), divided by an annual safe withdrawal rate of between 3% to 4.75% depending on your age at retirement.

The amount you need to save for retirement, is the amount of money you will need, to cover the cost of your retirement. The cost of your retirement is your retirement budget, which we calculated, when we answered the previous question – «how much can I spend in retirement?»

When can I retire?

When you can retire, is determined by when your savings can pay for your spending in retirement, based on your retirement budget. So, if your retirement budget is $3,000 per month, you currently have $600k, you need $900k to pay for your retirement, you save 25k per year, and your investments earn 10% compounded annually – you can retire in 3.5 years.

Did you notice, that the common thread in answering all three questions, was your retirement budget? That is because creating a retirement budget, your spending plan for retirement, is the key to calculating how much you will need for retirement, and to figure out when you can retire.

About the Author:

Author Ramsay Mameesh is the founder of iPlan Retirement – an eco-concious retirement planning company located in San Francisco, CA. Mr. Mameesh is a graduate of California State University with degrees in Bus. Admin, Economics and Marketing. He has over ten years experience working for large finanancial institutions. More of his articles can be found on the iPlan Retirement Blog.

A retirement calculator shows you how much to need to save to get the income you need when you retire. Or it may be how much you want! That depends how much you are making, and how young you are. Either way do use a retirement calculator.

You can find a retirement calculator on many web sites, so you do not need to get the services or a retirement planner or investment advisor to find the answers. In this way, you use the retirement calculator, calculate the amounts you need, and then visit an investment advisor or retirement planner.

To decide how much you need to save, you need:

1. The income you need to live on at today’s prices

2. The rate of inflation per annum between now and the retirement date.

3. The rate at which your fund will grow.

Let’s go through these and how they relate to a retirement calculator. First, how much do you need to live on? Remember, that retired people do not normally spend as much as people who work. When you retire, you won’t need:

special clothes for work the sort of car that keeps you up with the Joneses

you will be able to take holidays at off-peak times

and you will have time to do things – instead of paying to get them done.

So your costs will be lower. So let’s say you are earning $60,000 a year now, you might think that $50,000 would be enough. Next you need to remember that if you are healthy, you expect to live for 15-20 years, and so need to allow for inflation in that period – so actually you need more! This is where a good retirement calculator comes in.

2. The next thing the retirement calculator needs is the rate of inflation, or what you expect it to average until you retire. With the price of oil going up, we know that inflation over the next decade will be higher than it is now. Official figures put inflation at around 2-3%, but the true figure is more like 5%.

This means that you need to allow for at least 5%, and probably 7% and feed that into the retirement calculator.

4. At what rate will your retirement plan grow? A difficult one this. Five years ago, people were talking in terms of 10%, but not now experts suggest a lower figure. The problem is that a retirement fund or retirement plan has to be prudent – you don’t want to wake up one morning, a year or before you retire, to find that a crash on Wall Street has cut the value of your fund by 30%. You just won’t have the time to get that money back.

So you will be doing well to get 10% return, but could almost guarantee 5-6%. Maybe 7-8% would be a realistic figure to put into the retirement calculator.

The retirement calculator is just some software set up to make a calculation after you enter some figures. As I said earlier, the retirement calculator needs:

Required income

Inflation

Expected return

And of course, how long till you retire.

Here are some results from a retirement calculator:

Required income: $30,000 per annum

Years till retirement: 15 years

Annual inflation: 2.5% (unrealistic)

Annual yield: 5%

Income needed in 15 years: $43,448

Required value of retirement plan in 15 years: $825,000

Quite a lot of money for a modest retirement income. Here’s another one:

Required income: $30,000 per annum

Years till retirement: 20 years

Annual inflation: 5%

Annual yield: 8%

Required value of retirement plan in 20 years: $987,573

If you want an income of $45,000 when you retire – equivalent to less than $30,000 today – you will need: $148,000.

When you use a retirement calculator, make sure you use one that does calculate the income you will get at retirement adjusted for inflation – over 20 years, you will need 50% more than think you need today. If you do this, then you will benefit form using a retirement calculator.

About the Author:
Rex Truman is not retired but should be – instead he gives information at RetireWhenULike.com to help people save enough so they can enjoy retirement, ideally with an interesting job where they are in control.

It can therefore be an incredibly resourceful tool in the overall planning of your retirement, but remember that it is only an estimate and therefore you should not use the results given to you by this calculator as an exact calculation of your retirement benefits.

You can use a federal retirement calculator to calculate the basic annuity for employees in the FERS, CSRS, or CSRS-offset retirement system including credit for sick leave if applicable, to confirm retirement eligibility, and to calculate survivor benefits.

The federal retirement calculator is not a tool that can be used to estimate all variables of retirement. For example, it would not be helpful in determining life insurance or health insurance during retirement or in calculating the annuity amounts for those who do not work full time. It is best to stay within the perimeters of what the calculator is designed to do.

Other Tools

Besides the federal retirement calculator there are other retirement planning tools that you can take advantage of as well, including the QuickAnswer retirement calculator which helps assess your progress towards retirement, the standard retirement calculator which tells you how much you should save for retirement, the RRSP accumulator which tells the power of compounded investment returns, post retirement calculator which estimates your retirement income, and the RRIP calculator which helps you to build a productive and successful withdrawal strategy.

A few others that estimate useful information that will help you develop a plan for your retirement are the life expectancy calculator and the annuity calculators.

Retirement is one of the most major and important times in anyone’s life, and it is an issue that you should be thinking about early on in your life. The earlier that you can begin to plan and prepare for your retirement the better off you are going to be and whether that means using a federal retirement calculator or other retirement planning tool, the more you can do the better.

There are a range of topics covered under personal finance. Personal finance includes focuses like budgeting, retirement, savings and debt management. Personal finance covers everything involving your money, from making it to spending it.

The main part of managing personal finance is budgeting. It is common for people not budget and this can lead to issues with personal finances. The idea of making a budget can be made more complex than it really is. The thing that makes budgeting most difficult is that it takes away your freedom to just spend impulsively. For this reason, having a budget is a big help.

When you do not control your spending you end up with debt. To have financial freedom you need to be debt free. This comes when you get control over your expenses and be in control of your spending. This is what budgeting does for you.

Budgeting is all about knowing what you need to spend verses what you do not need to spend. Your budget will set up where your money must be spent and the options you have for non-essential spending. You will see your spending habits laid out and you can then decide if that money is being spent wisely or if it needs to be allotted to another expense.

There are five keys in financial planning that will be important in to getting your finances under control. These include: assessment, setting goals, formatting a plan, executing and monitoring the plan and reassessing the plan as needed. By following these five areas you will be on the path to financial freedom.

Assessing your finances is something you will find goes right with budgeting. This will allow you to see the clear picture about your money. It will let you see the flow of your money and give you better understanding of it.

Setting goals allow you to make definiative choices about your finances. When you have goals you have something to work towards. This makes things like investing much easier because you have it clearly spelled out what you want to accomplish.

Your financial plan sets out how you will attain your goals. The plan creates the steps and things you will do to reach your goals. It will help you to see what you have to do to reach your goals.

Executing and monitoring your plan will help to act like a check system so you will reach your goals. You need to just get started and put it in to work and then ensure that you stay on track through monitoring your progress.

At some point you may need to reassess your plan. This may happen if your financial situation changes or you get of track. Reassessing your plan is just another step to ensure that you keep down the path to reach your goals.

The last bit of financial advice to help you towards that goal of financial freedom is about credit cards. Credit cards can bea major fault I your financial plans due to high interest. However, you do not have to cut them all up and ditch credit cards for good. You just need to get control over your credit card debt.

If you have a credit card account that isnot delinquent then you can ask your credit card issuer for lower interest rates. A phone call may be the way to get your interest rates lowered to a more manageable rate.

In the long run paying less interest will help you to save a lot of money that can be better used to help you towards financial freedom.