Despite economy, you still need to save for retirement

Planning for retirement really isn’t that difficult: Just make a lot of money and save it, right?

Sitting behind his desk at CB&S Bank in Muscle Shoals, Randall Paseur laughed in agreement.

“Well, there’s no secret to retiring,” the executive vice president of financial services said, smiling. “It’s true that you can’t have too much money, and you need to invest a lot and save a lot.”

Yet even though the theory seems simple, in practice, retirement planning can be a stressful minefield of avoidable mistakes, bad choices and misguided advice. Not to mention uncontrollable economic conditions.

If there’s any doubt, just ask folks who saw their retirement accounts plummet during the recent recession.

So what’s the solution? Given the pitfalls of an ever-changing economy, can you still successfully plan for the retirement you want?

Local financial experts say yes, you can — if you start as early as possible and make knowledgeable and purposeful decisions about your money.

The first thing is to know your numbers, said Lelia Wissert, regional agent in consumer science and personal financial management for the Alabama Cooperative Extension System in Florence.

“Record-keeping is the most important thing. You can’t make plans until you know what you have,” she said. “When you’re planning for retirement, you should know what your income is looking like and what your expenses are so you can estimate how much you’ll have coming in and how much your expenses will be.”

For example, she said, in retirement you’ll typically spend less on transportation, eating out and clothing.

“You need to stop and think and look at what your life is like now and what your life will be like in retirement, and give it a good ballpark estimate,” Wissert said.

A good way to start is by visiting extension.org for information on personal finance, she added.

Probably the No. 1 mistake she sees people make in retirement planning is relying on Social Security.

“There are so many people who think Social Security is what they’ll live on, but when Social Security was established, it was to keep you from living on the street. It was never meant to be your retirement. When I talk to young people, I ask them if they know anyone living on Social Security and having a big time, and they say ‘no.’ Social Security is supposed to be one piece of the picture, and needing the other pieces is something folks have to think about.”

Before you put the pieces together — company retirement plans and personal savings are the other income generators — you have to know what the picture’s going to look like, the experts said.

“The first thing is envisioning your retirement,” said John Dupuis, financial adviser with Edward Jones investment firm in Florence. “The first thing I tell people is to think about how you want retirement to be. Do you want to travel to Europe or the Gulf Coast? There are different budgets for different kinds of travel.”

Dupuis recommends looking at expenses — first the current budget and then a future budget incorporating that vision.

Then compare the two to get an accurate idea of what the budget will look like in retirement.

“Two big questions are, is your home paid for and will you have medical insurance,” he said. “Some people have their companies provide medical insurance in retirement but most don’t, and that’s one of the largest expenses in retirement that people forget to plan for.”

After calculating an annual retirement expense budget, it’s time to look at the income budget and the three main sources of retirement revenue: Social Security, your company’s retirement plan and personal savings.

“It’s that simple,” Dupuis said. “First you have the expense budget, and then the income budget and then we can consider income generation. It’s two different styles of investing. When you’re building towards retirement you can invest with a little more risk. When you’re in retirement, you’re more conservative with income production and conservation of principal.”

Anyone at any age can start planning for retirement, although obviously the more time you have to save and invest, the more money there will be.

“If it’s somebody who’s ready to retire right now, we can do a picture of where they are and project what their income’s going to be. Sometimes it’s a great meeting and you’re going to be where you want to be. Sometimes it’s not a great meeting and you’re going to either have to redo your vision or work X amount more years and that’s not very fun,” he said.

“With younger clients, 50 and below, we can see where they are currently and do calculations based on their vision of the pool of money they’re going to need in retirement. Then through mathematical calculations, we come up with monthly investing amounts over the years that will get them to their goal. Start with your dream, and if we have enough time and resources, we can make the dream happen. If we don’t, well, reality’s the hard part of my job.”

For Paseur at CB&S Bank, one of the key elements of a successful retirement is having no debt.

“That’s one of the best ways to make sure your money is there and that you will have enough. If you turn 65 and you still owe on a $250,000 mortgage and auto, if you have a lot of debt, then it’s going to be hard to retire,” he said.

A quick calculation for what you might need in retirement begins with 80 percent of your current income plus an allowance for inflation — let’s say

3 percent.

In the example Paseur used, if that number was $48,000 per year, that’s $4,000 per month, minus Social Security of, let’s say, $1,500 for a total of $2,500 per month, or $30,000 a year, which means an investment principal of $600,000 at a 5 percent return.

Paseur, an adjunct finance professor at the University of North Alabama, advocates the 5 and 5 Rule — “Five years before and five years after retirement are the most critical times in investing,” he said. “Those are the times to start being more conservative” — and believes in living conservatively even before retirement.

In fact, he believes that a conservative approach to spending pre-retirement translates to a more successful post-retirement.

“Budgeting is important in how you’re going to get to retirement. You have to budget for it. You have to have the money put aside to build up, and you may have to sacrifice something else. Our parents and grandparents grew up in the Depression and sacrifice wasn’t scary to them,” he said. “In order to be successful, you’re going to have to work hard, but the other thing is you’ll have to sacrifice. To plan for retirement is to have to budget. Just the same as any business, the individual should have a budget and look at every dime you spend, although it’s human nature that most of us don’t want to do that. You’ll find that you’re really wasting a lot of money and could cut back. And be careful when making a big purchase that will only make you feel good for a short while.”

The bottom line, Dupuis said, is to know what you want out of retirement.

“Be goal-focused,” he said. “Have a strategic plan. A successful retirement doesn’t just happen — and it’s worse today.”