Nurturing your nest egg

Organization + calculation = a secure financial future

by Jessica Griffith

Bird in a nest constructed from dollar bills. Retirement is changing and researchers are tossing out the “R” word in favor of the phrase “later life.” Travel, volunteer work, even second careers appear on the wish lists of those contemplating the next phase of their adult lives.

“I think it is important to throw all stereotypes of retirement out the window; there is no one-size-fits-all,” says Marlene Stum, professor of family economics and gerontology in the college’s Department of Family Social Science with a joint appointment through Extension Service.

Longer life expectancies also mean that many Americans live 30 or more years beyond traditional retirement age—as much as one-third of their lifespan. Most people will need to find income from a patchwork of earnings, pensions, Social Security, 401(k) plans, retirement accounts, and other investments. It is up to the individual to keep track of these disparate resources and ensure enough money is available. “What is increasing,” Stum comments, “is the need to take personal responsibility for your own financial security vs. relying on employers and/or public resources.”

Stum was selected for the National Initiative Management Team for Financial Security in Later Life, through the U.S. Department of Agriculture’s Cooperative State Research, Education and Extension Service (CSREES), where she lent her expertise on financing long-term care, inheritance issues, financial security for an aging population, and health-care decision-making in later life families. She developed curricula and trained extension educators nationwide in a number of financial security-related areas.

“People are really hungry for information they can trust,” Stum says. “We aren’t selling products. Our goal is to provide research-based information. We can help people see the big picture and help with decision-making criteria.”

Plan early, review often

Retirement savings, or the lack thereof, is of national concern, says Sharon Danes, a professor in the college’s Department of Family Social Science and family economist with the University Extension Service. The U.S. Department of Commerce reported in February that the personal savings rate is at its lowest level in 74 years at negative one percent.

“A lot of people are not adequately planning for retirement,” says Danes, who wrote an extension publication called Planning Ahead for Retirement that addresses both financial and non-financial considerations.

When people think of retirement, they think about five or 10 years of travel or family time, says Glenice Johnson, a regional educator with the Extension Service’s Crookston office. “I don’t think many of us look at the fact that we could be retired for 25 or 30 years,” she says. Combine that with a system that plants most of the financial burden of retirement on the individual, and the result is widespread confusion and procrastination.

There are many material and non-material reasons to develop a detailed retirement plan, as Stum points out in the course materials for Take the Road to Financial Security, available through the University Extension Service, online, and elsewhere nationally. Financial resources aren’t just about the cabin you buy or the trips you can take; they are vital to ongoing independence in later life. Creating and communicating your plan with loved ones also can reduce conflict down the road and keep you from being a burden on others.

It’s best to start planning and saving early, as financial and human resources professionals always advise. “Retirement planning starts with your first day at your first job,” advises Jane Schuchardt, national program leader for CSREES.

Young workers should maximize any tax-sheltered retirement plans offered by their employers, Danes says. That means taking advantage of employer matches, contributing the maximum allowed by law, and choosing investments that pay the highest returns considering the risks involved.

As you approach middle age, it is time to seriously consider how much income you will need to maintain your lifestyle. Figures will vary, but an oft-quoted sum is 70 percent to 80 percent of current expenses, adjusted for inflation and future health needs, Danes says.

The government is trying to help by increasing the amount people can contribute to tax-deferred individual retirement accounts (IRAs), Danes says. In 2007, that figure is $4,000 for individuals under the age of 50 and $5,000 for adults 50 and older; those numbers each increase by $1,000 in 2008.

Once you have a target dollar figure, review your savings and investments. Is a higher savings rate required? Bear in mind that a full one-third of your life may be lived and enjoyed beyond the age of 60, and that what you need and want may change with time. Revisit your later-life plans regularly, Stum advises, especially when changes to family, income, and other significant shifts occur.

How much will be enough can depend on gender, along with many other factors. According to the U.S. Administration on Aging Profile of Older Americans: 2005, three-quarters of women who have been married are widowed by the age of 85. Poverty rates tend to be higher for women, as well as for those who live alone, non-married individuals, ethnic minorities, and people who are 85 or older.

In sickness and in health

Longer lifespans also mean that many who are themselves approaching retirement also are caring for aging relatives. It’s important to realistically plan for the cost of care for parents or in-laws.

“Most people equate long-term care with a nursing home, but the majority is provided by family in the home,” Stum says. Such informal care can have significant financial and emotional costs to the caregiver.

Medicare and most private health insurance do not pick up the cost of long-term care. While not everyone requires long-term care insurance, Stum says everyone should consider their potential long-term care needs just as they review options for traditional health insurance. The need for any type of long-term care increases significantly at age 85, she adds.

Most adults live active, healthy later lives. However, as individuals live longer, their health-care costs increase. Fully 80 percent of Americans over 65 have at least one chronic health condition, and their average annual health care expenses were more than triple those in the traditional working-age group. Stum advises most retirees to consider a Medicare supplemental policy to cover deductibles and copays.

Financial goals and philosophies also feed the conversation. “What do you want your resources to pay for? Some people will say, ‘I saved all my life so that if something happened, I could pay for it.’ Others will say, ‘I want my life savings to go to my kids,’” Stum says. “That has to be part of the conversation.”