Meet Bob and Nancy Jenkins*, ages 35 and 32, respectively. Bob and Nancy represent the typical two-income American family, bringing in about $80,000 each year between the two of them.
Recently, they began contributing to their 401(k) plans. Each month, they diligently tuck away $200 of their monthly income into a 401(k) plan. So far, their combined plans have a value of about $8,000. By the time they are age 65, they hope to achieve their goal - earning 75% of their current after-tax income, or about $40,000 per year.
Can they achieve their retirement goals at this rate? Sadly, the answer is "No." Although Bob and Nancy believed they were ahead of the curve in retirement planning, they found they have a shortage of about $270,000. To meet their personal goals by age 65, they need to increase their monthly allocations.
Like most people, Bob and Nancy put off contributing to a tax-exempt retirement plan until they believed they had more disposable income at hand. As a result, time slipped away, leaving them vulnerable to income shortfalls as their retirement age crept near.
The table below illustrates the price of procrastination for Bob and Nancy Jenkins:
** In addition to the $200 per month already allocated by Bob and Nancy. This table reflects the following assumptions:
(1) A two wage-earner family with an established 401(k) plan value of $8,000 and contributions of $3,200 per year.
(2) A goal of earning about $40,000 per year from age 65 onward, including Social Security income and one spousal pension.
Will You Be Able to Retire at Age 65?
According to the Social Security Administration (2002) and the National Center for Health Statistics (2000), 67% of Americans will have incomes of less than $40,000 when they retire. Think about it - less than $40,000 is not a lot to live on during your twilight years, especially if you are planning to travel domestically or abroad.
To find out if you are on track for a well-funded retirement, request an appointment for a financial review with a licensed agent of The Western and Southern Life Insurance Company. *Not their real names.
