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Plan for the future today


© St. Petersburg Times, published March 15, 2001

[Times art: Teresanne Cossetta]
"Social Security will be bankrupt by the time you get ready to retire. You'd better have another plan for your retirement." How many times have you heard those statements and how many times have you ignored them?

You are a teenager, and this seems so immaterial to you. However, a person can form a habit of living a certain lifestyle at a very young age. Social Security benefits may well be available to you at retirement, but you may find the monthly payments you receive are not enough to enable you to live as well as you want to live. (After all, when Social Security was started in the mid 1930s it was only to provide "supplemental" retirement income, not full retirement income.)

chartWhy not guarantee your future and form the habits of saving at a young age? Set a goal -- save for a down payment on a car, a senior trip or tuition for college. With the number of people who save for the future in the United States declining continually over the past three decades, apparently many people think it is more important to spend now than to save. Since the beginning of 2000 the personal savings rate in the United States has been less than one-half of 1 percent. About 30 percent of the estimated 76-million baby boomers alive today haven't yet planned for their retirement.

Time is running out. In addition, improved medicine has increased the average life span so that the elderly often outlive their savings. However, many people do not realize that by starting at a young age, they can save less yet have more money in retirement than if they save larger amounts for retirement only later in life.

To illustrate this point, let's start with a scenario of saving for a down payment on a car beginning your freshman year in high school. You plan to save for two years and purchase a car during your junior year in high school. See chart below:

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The general rule is that 80 percent of your present annual income is required to sustain current living standards throughout retirement. Although valid for the typical case, the percentage (80 percent) may need adjustment depending on what activities are planned for the future. Extensive travel may mean having to save more money. If one is willing to hold a part-time job during old age, less money can be saved in the present. If outstanding debts (home mortgage and car loans) have been repaid, funds may be diverted elsewhere.

One must also consider health care. Many businesses offer retirement packages that include health care plans. Many people evaluate a career's retirement benefits; if health care is not covered, then these expenses must be accounted for.

When you set a goal and break it down into monthly or weekly amounts, saving doesn't sound so bad. Many people don't realize the pains of retirement planning can be alleviated if saving is started while you are still young. Often saving becomes a positive addiction because you can see how you benefit from developing a plan at an early age.

chartFor example, a married couple, both age 25, who start saving $4,000 yearly (through a typical 401K investment plan), will have more than $1.4-million ready at age 65. However, if the same couple did not start saving until age 50, they would have only $128,000 ready at 65. Saving a small amount over a long period is easier and secures more money. Take advantage of the benefits of long-term investing and start building a "nest egg" now, whether you are 15, 25 or 45.

In addition to long-term savings, short-term investment may supplement preparation for retirement; however, this may prove too risky for most people. Buying and selling stocks, if timed correctly, may produce profit in a short period. But, even though some popular advertisements give the impression that such buying and selling leads to profits, this is not usually the case.

The majority of day traders do not make money. A warning to all investors that should be key to their investment choices is this: Past performances do not necessarily guarantee future results. That is why many people have developed the "buy and hold" philosophy developed by well-known investor Warren Buffett. People such as Buffett conduct careful research, then create their investment portfolio for the long term. To better understand all of this, some of the benchmarks to measure investment portfolios against are explained below.

The Dow Jones Industrial Average is a price-weighted index of 30 major companies. As a result, high-priced stocks have more of an influence on the index than low-priced stocks. Although changes have been made to the index in the past few years to more accurately represent the U.S. economy, the index is still heavily weighted toward energy stocks and stocks in cyclical industries.

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Like the Dow, the Standard & Poor's 500 is designed to track the performance of large companies, often called "large caps." The S&P is an index that measures 500 stocks and is heavily weighted toward fast-growing companies. The S&P is considered the benchmark for comparing the performance of large-cap growth money managers.

In a different market, the NASDAQ National Market System Composite Index measures the performance of stocks that are traded over the counter. The index contains many seasoned companies as well as stocks of newer companies, mostly in the technology and financial services fields.

chartSome investors become disillusioned because their portfolios are not keeping up with these market indexes. However, the market returns can be deceiving because the returns the market experiences can be caused by only a handful of stocks. In 1999, only 10 Standard and Poor's stocks accounted for nearly all the entire index's return. This is why it is important to keep your portfolio diversified with different kinds of stocks and other investments to avoid being too dependent on one particular industry or security.

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With this chart, put together several different portfolios with different combinations of stocks and see how well you would have fared. Use the Web sites here, calculate 5-year investments in other stocks or mutual funds and determine how well those portfolios would fare.

Retirement planning can be an easy process, if you choose to develop the habit of saving early. Save small amounts of money at a young age and have a large sum for the future. With wise planning, even early retirement could be an option.

Finally, even though this may be light years away, you might want to have some fun exploring the retirement planning sections listed on some of the Web sites below. They are easy to use and will present you with some eye-opening information.

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-- Anna Vanlandingham is an advanced placement economics teacher at Lake Mary High School in Seminole County. She has been a teacher for 20 years and has won several national and state economics education awards. Chapters on the securities industry have been reviewed by the Florida State Comptroller's Office, which is responsible for protecting consumer rights in the securities industry.

About the Florida Council on Economic Education

Money Stuff: Get it! Spend it! Keep It!

Introduction and previous chapters

Money Stuff was developed by the Florida Council on Economic Education and project director Fonda Anderson. The council is a statewide non-profit organization founded in 1975 to educate K-12 teachers and students about the free enterprise system and to instill in them an appreciation for a market economy. For more information on the council's programs for teachers and students, please call (813) 289-8489.

About Newspaper in Education

The St. Petersburg Times devotes news space to NIE features throughout the year, including this classroom series. The Times' NIE department works with local businesses and individuals to enrich the classroom experience by providing newspapers, supplemental guides and educational services to schools in the Tampa Bay area. To find out how you can become involved in NIE, please call (727) 893-8969 or (800) 333-7505, ext. 8969. For past chapters, check out and click on Money Stuff.

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