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Finding your way
© St. Petersburg Times, The road to retirement is looking rocky. Stocks have lost nearly a third of their value since peaking in spring 2000, and the impact on retirement savings is deep and personal. Last month's terrorist attacks and the subsequent stock market selloff damaged not only the balances in our accounts, but also our confidence in the future. For millions of U.S. workers hoping to retire someday, it is time to go back to the drawing board -- or to make an initial visit. "Most people don't know where they stand," St. Petersburg certified public accountant Robert Doyle said. "People put more into planning a simple road trip than they do their retirement savings." Planning pays off in both cases. To get from Clearwater to Cleveland, it helps a lot to have a road map. If your goal is to arrive by Friday, you figure out ahead of time which roads to take and how far you need to travel each day. "The first day of travel if you have a flat tire, blow the transmission out and don't make it to Atlanta, you know you have to drive 300 miles extra the next day," Doyle said. Or you may have to delay your arrival. A retirement plan works the same way. Once you know your destination -- your retirement income goal -- you can construct a plan for reaching it. It will tell you how much you need to save each year, what kind of investment return you need to earn and what side goals you might be able to accomplish along the way, such as paying off a mortgage or financing a college education. If it's done right, a plan provides a good indication of whether you are on track for a comfortable retirement. But road trips and life don't always proceed according to plan. The stock market's reversal is the equivalent of a blown transmission. Retirement goals still may be within reach, but changes will be required. "Without a substantial and sustained rally, the projections we made over the past several years will have to be adjusted," Clearwater financial planner Ray Ferrara has warned his clients. "If we originally thought 10 years would allow you to reach your financial goals, we may have to tack on another couple of years." One reaction to terrorism and its economic fallout might be to give up planning -- to live for today because tomorrow is so uncertain. But Ferrara argues that recent events confirm the need for a plan. "If there's no plan, you don't have any idea where you're going or how you're going to get there," he said. "If you've got a plan, you can assess the options that are available." Three or four decades ago, retirement planning was not so necessary. Workers were more than twice as likely as they are now to have a pension that paid a regular income for life, and subsidized health insurance was more likely to come with it. Social Security benefits represented a good return on their payroll taxes and savings provided the icing on the cake. But the world changed: Only one in five workers now gets to participate in a traditional pension plan, and many of those will not stay on the job long enough to earn a pension of any significance. Most of today's workers will have to be 66 or 67 to collect full Social Security benefits -- and that's at the earliest. When the baby boomers start collecting their benefits, there will be fewer workers paying taxes to support them. Without significant changes, the system will run out of money. While the burden is now on workers to provide the foundation for their own retirements, only about half participate in a retirement savings plan at work. Young, low-income workers who would benefit the most from saving are the least likely to participate. Medical bills are rising while health insurance is becoming more difficult to get. Retirees younger than 65 may not be able to get coverage for pre-existing conditions, while those eligible for Medicare face mounting costs for prescription drugs. And Medicare never has covered long-term care. In that tough environment, retirement planning becomes more essential and more difficult. And any plan has to be executed. If you haven't saved and you're not willing or able to start, no plan in the world will work. "It's like anything else in life," accountant Doyle said. "If you want it bad enough, you can have it, but you can't have everything. A lot of people postpone a retirement plan checkup because they're afraid of the answers they'll get." A third of all workers have saved less than $10,000 toward retirement. Chances are that many of them recognize they are headed for trouble. But waiting until retirement is imminent limits the opportunity to correct course. Today's special section allows you to test your own retirement readiness using the worksheet on page 3H. We also share with you what some St. Petersburg Times readers are doing to prepare for retirement and offer tips from financial experts along with resources you can tap. It is never too early to start planning for retirement. "Start early and start saving little bits of money and they become big bits of money," said Greg Rosica, a certified public accountant with Arthur Andersen in Tampa. Even small savings -- just 1 percent or 2 percent of pay each year -- make a difference, especially if they help develop the savings habit. But most people don't get around to taking the subject seriously until they are in their mid 40s or older. "Every one of us has a trigger point," financial planner Ferrara said. For some people, it's reaching the halfway point between college graduation and retirement. For others, it's the accumulation of $100,000, a hefty sum to manage if you don't have a plan. For still others, it's a change in jobs or career goals. Even those who wait until they are in their 50s or early 60s still can do something to improve their retirement prospects if they have enough income and the motivation to carry out a crash savings plan. "People have taken retirement planning more seriously in the last five to 10 years," said William Arnone, a partner at Ernst & Young and author of the firm's Retirement Planning Guide. "More are attempting it and more are succeeding." Many people craft their own retirement plans. Simple worksheets such as the one in today's paper suffice for some, especially younger workers. For others, a worksheet should be just a beginning point. Those who have more complicated finances or who are approaching retirement can get more detailed plans with the help of financial software such as Quicken or Microsoft Money. Still others turn to accountants or financial planners for help. Professionals can help both with creating plans and with executing them. "Crunching numbers is the easy part," Arnone said. "It's the psychological, the motivational part that's harder. The central human state seems to be inertia." Saving significant sums every paycheck isn't easy for many people. "Planning and saving money is a lot like exercise," Ferrara said. "It's something we know we should do and we're always going to start tomorrow. You have to build up to it. If you try to save too much too fast, it hurts too much so you quit saving and never get back to it." Saving can be particularly tough during those middle years, the 30s and 40s when retirement savings often take a back seat to the costs of bringing up children, running a household and saving for college. And saving is only part of what it takes to execute a retirement plan. What's been saved has to be invested. That seemed a lot easier when the bull market was roaring along and investors became accustomed to earning returns of more than 20 percent a year. "The market's declines may have a been a gut check for a lot of people," Arnone said. "But there have been extraordinary incidents before and the market has survived them." He said investors should not lose sight of the big picture: They need to have a plan for dividing their savings among stocks, bonds and cash, and they need to stick with it regardless of the market's ups and downs. While younger people should have a higher percentage of their assets in stocks, even a person on the cusp of retirement needs some, Arnone said. "Today people are spending as many years in retirement as they did in work," he said. "They can't afford to shift entirely into bonds." Sticking with a plan does not mean leaving savings untouched. Since the market has gone down, investors who wanted to have 60 percent of their assets in stocks may now have only 40 percent. Arnone and other financial experts say that about once a year investors should rebalance their portfolios, selling some of the assets that have gone up in value and buying more of those that have gone down, restoring the original percentage allocations. For most of the 1990s, this process would have meant selling stocks and buying bonds. This year it means the reverse. "Savvy investors buy in the down market and sell in the high market," Arnone said. But he acknowledges that's tough to do. In the past few weeks, many investors have been bolting to safety. Even without the prompting of a financial crisis, workers should be reviewing their retirement plans every year, just to make sure they are on track. "Just pick a date, and on that date take a look at your finances every year," Arnone said. Many people choose tax time, since the tax preparation process already requires them to sort through their financial paperwork. If retirement is still many years away, the latest downturn may require nothing more than reviewing your portfolio and making sure your assets are distributed according to your goals. But if retirement is approaching, you may have to ramp up savings, delay your retirement date or lower your income goals. A good plan will help you assess your alternatives. But the decisions will still be yours to make. -- Helen Huntley can be reached at huntley@sptimes.com or (727) 893-8230.
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From the Times Business report
From the AP
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