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Jim Lentini: Make a plan and work it

Posted: April 27, 2009 9:25 p.m.
Updated: April 28, 2009 4:55 a.m.
Under the most common pattern of employee benefits being offered today, workers accumulate substantial savings before retirement. They then gradually draw down those savings during retirement.

Personal knowledge and choices in planning for retirement are critically important. Unfortunately, many workers and retirees have an incomplete, or misleading, picture of how much they need to save, how to invest their savings effectively and how to make their money last as long as they live.

A joint project by LIMRA International, the Society of Actuaries, and Mathew Greenwald & Associates identified the following 10 ways in which Americans lack a realistic understanding of retirement savings.

• Saving too little. Most people haven't tried to estimate how much money they will need for retirement, or they underestimate their income needs.

• Not knowing when retirement will occur. Workers often retire before they expect to, and before they are ready.

• Living longer than planned. Some retirees will live far beyond their life expectancy, which creates substantial risk of outliving their savings.

• Not facing facts about long-term care. Three out of five individuals over age 65 will need long-term care in their lifetimes. Average stay is 30 months. What will that do to retirement savings?

• Trying to self-insure against long life. Although many guaranteed lifetime income options are available, some retirees will choose to receive retirement benefits in a lump sum. Unless you have other income-producing assets, this is a failure to recognize the difficulty of self-insuring your longevity.

• Not understanding investments. Workers are now largely responsible for managing investments for retirement in the most popular workplace pension, the 401(k) plan. Participants are responsible for investment selection in 401(k) plans.

• Relying on poor advice. Many pre-retirees indicate a strong desire to work with a financial professional, yet fail to seek this guidance.

• Not knowing sources of retirement income. Workers often don't understand what their primary source of income will be in retirement. This may lead to disappointment when trying to live on the income that is available.

• Failing to deal with inflation. Workers may deal with inflation by pay raises during working years. During retirement, inflation may be hard to deal with if you are on a fixed income.

• Not providing for a surviving spouse. Many married couples fail to plan for the eventual death of one spouse before the other.

This last point probably is the most important one if you have not provided the option for the income to last two lifetimes, and for adjusting income for inflation. These points are valid in a good economy, but are more troubling and difficult to deal with during our current economic problems.

It is now more important than ever to work with a professional who is aware of your circumstances, someone who will evaluate and work with you for the best solution of your situation now and in the future.

Remember, "Make a plan, and work the plan."

Jim Lentini is president of Lentini Insurance & Investments Inc. His column reflects his own views and not necessarily those of The Signal.


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