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Retirement Planning In A Financial Crisis

Whenever people ask me about their IRA, 401k, or other retirement account, they almost always make reference to these accounts as their retirement plan.  While this may just be semantics, I call these accounts not plans.  Your retirement plan, is simply that; your plan for retirement.  First, I want to stop here and really ask an important question, “What is retirement?”  Webster defines it as withdrawn from active duty or from one’s career.  I happen to live in Florida, and am probably somewhat of an expert on retirement living (since many of my neighbors are retired).  I see them loading their golf clubs into their trunks, pulling out their motorcycles, leaving for trips, working in their gardens, making plans to go to bingo, etc…  I discovered this fascinating chart below which outlines how older men have disappeared from the workforce in just recent years.

Labor Force Participation Rates of Men Age 65 and Over

Year Labor Force Participation Rate (percent)
1850 76.6
1860 76.0
1870 -----
1880 78.0
1890 73.8
1900 65.4
1910 58.1
1920 60.1
1930 58.0
1940 43.5
1950 47.0
1960 40.8
1970 35.2
1980 24.7
1990 18.4
2000 17.5

No slight to the ladies, but obviously statistics going back this far are going to reflect that men were the primary household members in the workforce up until the last 50 years.  In any case, the above chart does raise some interesting questions.  As we continue to live longer, we are also cutting back the number of years we are active in the workforce.  You can cross reference the above chart against the mortality age for each of the periods represented.  Up until about the 1930’s men basically worked until they died.  While the average retirement age in the U.S. is now 63, men are living to an average of 72 and women 75.  So, this means that the current American “plan” is to be in a state of retirement for 10 to 12 years.  As the medical field continues to help us live longer each year, it won’t be long before we are retired for 20 years or even more.  

Is your plan to simply pull up a chair on the porch and sit around for 10 to 12 years?  Play golf, bingo, or whatever other senior past-times are available in your community?  I can tell you that none of that is of interest to me.  I also truly question whether this is a biblical plan for us to embark on.  I have never read about retirement in the Bible.  Building for financial security is one thing, planning to become idle for a decade or more is quite another.  For me, I plan to continue my life work until I die.  What that looks like when I am in my sixties, I don’t know.  I hope I am still healthy enough and have a sound mind which will allow me to continue to write and speak. 

If we are all honest, our attention is no doubt drawn to those financial magazines in the grocery store with two fifty somethings tan, holding golf clubs, with the headline “Retire At 55”.  Wow, that really does look good, we might think.  Is that God’s plan for us once we hit 55, 60, or even 65?      

 

With the recent collapse of the stock market and the economy, I have been receiving countless e mails from people asking me what they should do with their retirement investments.  Despite my lack of enthusiasm for sitting around on the front porch for ten to fifteen years, I do think there is a great deal of wisdom in having a house that is paid off, and having enough money to take care of your needs during your older years (especially medical).  These are certainly worthwhile goals and good reasons to save and invest for your future.  I would also see great virtue in being able to donate your time during your older years (and your money), perhaps to even go abroad as a missionary if finances permit.  Financial freedom is my goal.  That is, being able to make the choice to continue in some kind of work that God is calling me to.  Having the freedom to do what God calls me to invest my life in, without telling Him to wait until I have enough money saved to obey him.

Interesting Videos From Ben Stein, He Clearly Buys Into The Idea Of Not 
Working During Retirement.  He Has Some Good Ideas Here Though.

Your Questions:

1.  With The Recent Collapse Of The Stock Market, Should I Stop Contributing To My Retirement Accounts?

While it may make sense to stop and do an analysis of where you should be investing inside your retirement account, I don’t think that you should stop contributing altogether.  After analyzing your time frame to retirement (whatever that means to you), and your risk tolerance, and getting some good advice from a financial planner, you may want to make some changes within your retirement account.  This means, that perhaps you increase your percentage of holdings in bonds or cash, while at the same time reducing your exposure to the stock market.  It might also include changing the type of stock funds you are in.  The Super Duper Technology Rocket Fund may not be appropriate for you at this time.  I recommend to my readers an independent financial advisor, Robert Yetman.  bob@stockmarketincome.com  Bob does not sell investments and works on a fee basis.  If you need some advice on allocating your retirement accounts, he would be an excellent resource.  Bob and I both agree that now is a great time to be investing in stock mutual funds since stock prices are so low.  If you want to avoid some of the ups and downs of the overall stock market, there are alternatives that Bob can offer to minimize your risk.

On this same topic, I would not stray from your plans to start a retirement account if you haven’t already.  These current economic times are no reason to avoid taking full advantage of IRA’s, 401K’s, and other retirement account options.  You can always leave your money in a safe investment choice within the account if you don’t feel secure with the ups and downs of the stock market.  The reality is, if you are young and have 20 or more years to reaching your mid-sixties, investing in the stock market may be your best option. 

2.  If I don’t Have An Emergency Reserve, Should I Stop Funding My Retirement Accounts To Be Able To Build One Up?

Some financial commentators would disagree with me on this, but I would stop funding your retirement accounts if you don’t have at least six months of your living expenses in readily accessible accounts( money markets, or savings).  Some might argue that your retirement accounts and emergency fund can be one in the same.  The problem with this is that many retirement accounts are difficult to access, and even if they allow for a short term loan, this money must be paid back if you stop working for your current employer.  Money that is withdrawn from these accounts may be subject to taxes and penalties if you take it out and don’t return it within the prescribed time frame.  It is for this reason, with rare exception would I recommend putting money into a retirement account until you have that six month reserve established.  There was a time when I recommend just a three month reserve.  Based on how bad the economy is, and how difficult it may be to find a job, I think six months is more of a reasonable reserve in today’s rough economic times.

3.  How Do You Go About Planning An Income From Your Investments In Your Older Years

A) Set A Goal For Your Income During “Retirement”

How much money, overall, do you want to have as your monthly (or annual) income?  Beyond that consideration (or perhaps as a function of it), do you plan to pay off your home at some point while you are still alive?  This particular goal can be evaluated with the assistance of a mortgage calculator.

B) Determine How Much Income You Will Have From Other Sources Than Your Investments.

Are you expecting a pension, Social Security, or other retirement income?  Will you continue to work or operate a small business?  There are not right or wrong answers to this question.  Many people don’t expect Social Security to be around for them when they reach retirement age, if you want to believe it will be their for you, that is your choice.  In any case, you can obtain your Social Security benefits estimate which will allow you to get a rough idea of how much you may want to plan on receiving from Social Security.  If you are entitled to any pension benefits through your employer, similar such benefits projections are usually available.

For the sake of analysis, let’s assume that I am expecting $3,000 per month from various retirement benefits.  Let’s also assume that I am expecting to earn at least $2,000 per month from working part time.

If my plan is to have $7,000 per month income (remember, you will need more in the future due to inflation), I will need about $2,000 per month from my investments.  $2,000 x 12 – $24,000 per year.  If I assume an earnings rate of 6% during retirement, I need a lump sum of $400,000 to achieve this.  This is a simple calculation.  Put your annual amount into a calculator ($24,000), next divide it by your assumed earnings rate (.06) and your final lump required will be calculated ($400,000).  Once I know I need $400,000 I can determine how much I need to save each month using a financial calculator.  To complete this calculation, you will need a future goal, your present account balance, an assumed earnings rate, and that’s it.  Plug in these numbers and you will find out what your monthly payment is to get there.

I found some really great retirement calculators that you can use online, which may be very helpful in making these calculations.

Retirement Calculator #1  (easiest to use)

Retirement Calculator #2 

Retirement Calculator #3 

    Interesting Video With Dennis Hopper, The Sixties Icon

  

Helping you make the most of God’s money!

James L. Paris
Editor-In-Chief ChristianMoney.com 
Follow Me on Twitter Twitter.com/jameslparis
Christian Financial Advice
Jim Paris 24 Hour Radio

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