Money Matters: Start saving like it's 2035

By Ashley Wilson The Daily Record Newswire Choosing immediate gratification instead of waiting for a better long-term payoff is a common vice among Americans. Every day we make choices that aren't necessarily good for us, but they feel good so we trick ourselves into thinking they are the right decisions. Someone may choose to eat cake today because of a co-worker's birthday, despite previously deciding to give up sweets. Another person may forgo 401k contributions to buy a new car. Somebody else may believe that an iPad is more important than a Roth contribution. Each one of these decisions may have short-term benefits, but also long-term detriments. This propensity toward immediate gratification has created a serious retirement crisis in the United States. According to a recent study from the Center for Retirement Research at Boston College, the average worker between the ages of 55-64 has saved only $78,000 for retirement. A sustainable withdrawal rate, say 4 percent a year, from $78,000 would provide only $260 per month in income for the first year of retirement. Of course, $78,000 might be adequate if retirement stayed the same over several decades. Many older retirees today enjoy a healthy pension and Social Security income. For many retirees in this scenario, their retirement portfolio functions as supplemental income or a potential safety net. But most workers today may not enjoy the same savings and steady income stream in retirement. Only 20 percent of workers today will have a pension in retirement. In addition, Social Security is under tremendous strain, and recent projections peg 2035 as the year Social Security will completely run out of money. So it's now up to individuals to save for retirement. Here are a few tips to help boost retirement income for folks preparing to retire in three years or in 30. First, answer this question: How much are you saving annually for retirement -- $5,000, $30,000, nothing? Next, determine whether there is a shortfall. An Internet search of "retirement needs calculator" yielded 1.4 million results. Most calculators are free and user-friendly. These calculators tend to be overly simple, but they are a good start. For a more personalized calculation that considers a variety of variables, ask a financial adviser for help. Then, if a gap exists, fill it. In most cases, this is the step where only motivated and disciplined investors will succeed. Though this process some people may discover that they are saving $5,000 a year but need to save $15,000 a year to live comfortably in retirement. So they need to figure out how and where they can make up the difference. This will usually require some budgeting and cutting back in areas, but it can be done. Lastly, go on autopilot. Be sure that savings take place automatically. Set up a salary deferral percentage for a 401(k). Set up IRA contributions to be deducted regularly from paychecks or transferred from bank accounts. Doing so will keep temptations from jeopardizing retirement. I believe building wealth doesn't necessarily require exceptional luck or know-how. Certain internal factors, more than external factors, most often will determine a person's financial wealth. Is the person disciplined, patient and capable of making logical decisions? If so, then building wealth may be within reach. Sacrifices may need to be made during working years, but such efforts could help clear a path to financial freedom in retirement. ---------- Ashley Wilson is a financial adviser with the Wilson Financial Group of Stifel, Nicolaus & Co. Inc., in Portland. Contact her at 503-499-6260 or wilsonam@stifel.com. Published: Thu, Mar 24, 2011