Ask Joan
Week of December 21st, 2007 • Next QuestionMs. Sabella has managed MainStay Balanced Fund since its inception in 1989. She is a Managing Director and has been with NYLIM since 2000. Prior to that, she worked at Towneley Capital Management, Inc. for 22 years. Ms. Sabella is a member of the Financial Planning Association, Financial Women's Association, and the CFA Institute. She holds a B.B.A. from Baruch College, is a Certified Financial Planner, and is a Chartered Retirement Planning Counselor.
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Q:I am a 32-year-old single woman. I don’t see getting married or having children in the near future. How much do I need to save for retirement and what is a good age to retire? I have tried planning on trying to retire at age 50, however I don’t currently make enough to do that. If my calculations are correct, I need to save between 13 and 15 percent of my income and this still will not allow me to retire until the age of 65, provided social security is still in an existence. In short, how do I plan adequately to have an enjoyable retirement?
A: Congratulations! The first step to securing an enjoyable retirement is developing a financial strategy. Despite your perception, you still may be able to retire before age 65. As you have pointed out, it will all depend on how much you save and what you envision you retirement to be.
As a general rule, you will need approximately 80% of your current salary in retirement. While this gives you a definitive starting point, you may need more or less depending on your life expectancy, whether or not you get married or if you have children, etc. (Currently, you are in an ideal spot to make solid financial contributions towards your future.)
And setting aside 13 to 15% of your income is a great start. I can’t stress enough how critical it is to contribute regularly towards your retirement¾most individuals your age don’t contribute more than 6.2% (Source: CNNMoney.com 2007). Hopefully you are taking advantage of your company’s 401(k) and company match. Believe it or not, 22% of 401(k) participants eligible for a company match don't contribute enough to get the maximum amount (Source: Hewitt Associates 2006). Maximizing your contributions will help you to accumulate wealth much faster.
Now when it comes to creating an investment strategy, I recommend taking a diversified approach, one that accurately reflects your risk tolerance and time horizon. It should consists of a blend of stocks and bonds aggressive enough to potentially generate the returns you need, but not put your retirement savings at risk during market recessions. Based on your age, you are young enough and have more time to recover from short-term setbacks, so you can afford to take a bit more risk with stocks. But as you near your retirement age, you will need to gradually shift towards a more conservative portfolio.
Overall, the best tip I can give you is to be honest with yourself. Like anything else, if you have unrealistic expectations or an unattainable goal, you will never stick to it or you’ll give up too easily. Review your financial strategy at least once a year to ensure you are making positive strides towards your goal. You may need to make adjustments to your investment allocations and/or decide to contribute more due to an increase in salary. At some point, you may also want to consider working with a financial professional. Not only can he or she help you develop a retirement accumulation plan, but he or she can also help you develop an income strategy when the time comes. Either way, by having a clear goal and financial strategy in place, you may find yourself in a better position to retire by age 50 than you originally thought.
This article is intended to provide general information only and is not intended to provide investment advice or any recommendation to buy, sell or hold securities. The content of this article is not appropriate for the purposes of making a decision to carry out a transaction or trade, nor does it provide any form of advice (investment, tax, legal) amounting to investment advice or make any recommendations regarding particular financial instruments, securities, investments or products. Any information herein has no regard to the specific investment objectives, financial situation, or particular needs of any specific investor, and investments discussed may not be suitable for all investors. Neither NYLIM nor New York life will be liable for any errors or inaccuracies in such content or any actions taken in reliance thereon. As a registered investment advisor, NYLIM may render investment advice for compensation only as permitted under applicable US and state law.
Questions will usually be answered within the next bi-weekly posting of Ask Joan. If a question is particularly involved, or the answer depends on the specific circumstances, it may be possible to give only a very general answer. In these cases, you will be advised to seek more specific advice.
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