The Fundamentals of Retirement Planning
Earlier Retirement and Longer Life Spans
When do you plan to retire – next year? In 10 years? In 20 years?
In 40 years? People are living longer than ever before. Many of you can expect to spend
at least 20 years in retirement, and possibly much longer. Throughout your retirement,
you’ll need to generate about 75% of your current annual income each year,
in order to maintain your standard of living.1
How Will I Pay For Retirement?
By the year 2034, many retirees may find themselves asking this disheartening question: What Social Security?
Currently, Social Security pays benefits to over 90% of Americans age 65 and older. Sadly enough,
projections indicate that by the year 2034, Social Security trust fund assets will be completely depleted!2
The number of Social Security beneficiaries is expected to rise to nearly 83 million by 2030, in large
part because of aging baby boomers. But, there won’t be as rapid an increase in the number of workers
paying Social Security taxes to finance benefits.3
To ensure a comfortable lifestyle during retirement, it is essential to establish and maintain a savings
plan that will replace the income that Social Security was originally expected to provide. Individual
Retirement Accounts (IRAs) and other qualified retirement plans are smart ways to build your
assets and pursue your retirement goals.
More Slices… Less Cake For Social Security Recipients:
Inflation, Procrastination, and Taxes
There are three obstacles that make saving enough money to maintain a comfortable retirement lifestyle
challenging: inflation, procrastination and taxes.
Inflation. The greatest risk for conservative investors with long-term goals, like retirement,
often has little to do with the volatility of their portfolios. The greatest risk they face is
inflation – the increasing prices of everyday goods.
The High Cost of Inflation
| |
1980 |
2000 |
Increase in price
over 20 years |
| Loaf of Bread |
$.52 |
$.99 |
90% |
| Movie Ticket |
$2.69 |
$5.16 |
92% |
| Average Home |
$76,400 |
$205,700 |
170% |
| Postage Stamp |
$.15 |
$.33 |
127% |
| Half Gallon of Milk |
$1.09 |
$1.69 |
55% |
Source: Bureau of Labor Statistics, U.S. Department of Labor
Many risk-averse investors equate safety with cash or cash equivalent investments such as money
market savings accounts6 and certificates of deposit.4 Unfortunately, the returns
on “safe” investments don’t always beat inflation over time.
A good way for investors to ensure that their portfolios outperform inflation is to
diversify. By choosing a conservative asset allocation that includes stocks, bonds, and
money market funds, conservative investors minimize risk and maximize return potential –
improving the chance that they will beat inflation over time.
Procrastination. Procrastination has a high price. Most people know that they’ll need to
rely on personal savings, retirement plans, and part-time work to live comfortably in
retirement. Yet few have established retirement goals, developed plans for achieving them,
or started to save! Remarkably, many people who are saving have no idea whether they’re
saving enough. In fact, a recent study revealed that 73% of those saving for retirement
think they should increase their efforts.
If you have been putting off planning and saving for retirement, its time to get started.
You can begin by learning more about Armada’s No Annual Fee IRAs, or go straight to our
Planning Tools section and discover tutorials and calculators that will start you down
the road to a comfortable retirement.
Taxes. Do you know about Tax Freedom Day? Tax Freedom Day is the day that
you finish earning what you’ll owe in taxes, and start earning the money you'll keep.
In 2002, Tax Freedom Day fell on April 27. The average American worked almost
one-third of the year just to pay taxes.5
If you would like to keep more for yourself and pay less to Uncle Sam, consider
a tax-deferred investment. One of the best known is an Individual Retirement
Account (IRA). IRAs are popular because, unlike regular investments that
require you to pay taxes on the dividends and capital gains earned each year,
investments held in an IRA grow tax-deferred. You don’t pay taxes on the money
you earn until you begin to make withdrawals – normally at retirement,
when your tax bracket may be lower.
1 2001 Replacement Ratio Study, by Aon Consulting and Georgia State University.
2 1999 Social Security Trustees Report.
3 USA Today, 2001.
4 CDs are insured investment products that guarantee the timely payment of principal and interest.
5 Source: The Tax Foundation.
6 An investment in a money market fund is not insured or guaranteed by the FDIC or any
other government agency. Although money market funds seek to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in a money market fund.
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