How long will you stay retired?

Ever wonder why some people retire and then a few years later they are back at work? It's because the average American does not have enough money to retire and stay retired. Therefore, they must find additional employment to supplement their shortfall. I've seen people reaching the age of retirement with $200,000 in their retirement account and they feel good about their prospects of a happy life after work. What they fail to consider is that they are currently living a $40,000 per year lifestyle. The probability that you will cut back more than 20-25% of your annual lifestyle is not realistic. Let's do some simple math - $40,000 divided by $200,000 equals about five years of retirement. So, what do you do?

As you near or plan for retirement, there are some decisions that you have to make:
What do you want to do during retirement? Some people like working and want to continue working but doing what they choose to do rather than what they have to do. In this case, research how much that job would pay and factor that as part of your income during retirement. It will reduce the amount that you will have to draw from your retirement account. If you want to sit home and watch TV everyday, that will also effect your monthly retirement income. Your electric and cable bill may increase but your driving expenses may be lower. Whatever you plan to do, develop an idea of how much that is going to cost you per month and per year so that you will know how much you need to live comfortably then multiply that by a realistic live expectancy and you will have a ball park of how much you need to have in an account when you make your retirement toast.

What about social security? It is a personal decision to consider social security in your retirement income. For most people, the amount they will receive from social security will not be enough to sustain their lifestyle and you may want to retire before the age that will allow you to draw full social security. Therefore, you should base that decision upon the annual statements that you receive from the government detailing the expected amount that you will receive based upon the year you retire.

How much should I be saving toward retirement? My advice is to save as much as possible but you should consult a financial advisor about where to save your money. Most employers offer a retirement plan such as a 401k and may even offer a percentage match. If you employer offers a match, then you should take advantage of that. For example, if your employer matches 50% of the first 6%, then they will match 3% of your 6% which would be a total savings of 9%. If you are nearing the age of retirement and don't feel as though you have saved enough, there are catch up provisions that will allow you to save more.

What if I can't save more? Some people are in a position where they have no more to save. If this is you then you should plan to work longer at your current job, work part time during retirement or plan to spend less. It is important to make these decisions before you retire rather than getting to year four and seeing the money begin to run out and panic because you don't know what you are going to do.

Retirement is a privilege. It is something that you earn by having a plan and making good decisions. Traditionally, Americans were able to retire comfortably because they bought a home in their 20s or 30s with a 30 year fixed mortgage, didn't spend more than they earned and kept a little nest egg tucked away. By the time they were ready to retire, the kids were out of the house, the house was paid for and they had a little money in the bank. Some sold their homes and lived off the equity while others enjoyed living rent free with minimal expenses and collected a little check every month. Today, we are so debt ridden and upside down in our mortgages, we can't afford to save without withdrawing the money the next week and the prospect of a comfortable retirement is an illusion that may never be attainable.

Your money matters and you need a plan to deal with your current situation so that you can make the good decisions that will lead to a comfortable retirement. Don't think that one day you will wake up, be 65 and able to walk away from your job. If that's your strategy, you may be 75 in a work force competing with 25 year olds.