Retirement planning: why advisers urge people to start early

There are a few people in their mid-30s who come to financial planners like Paul Yurachek of Washington, D.C., looking for ways to save for retirement. But there aren't very many. ``We have found when we go to seminars, there are a few 35-year-olds who might listen to what we have to say,'' Mr. Yurachek says. And the people who are in that age group who actually become his clients, he adds, ``are real savers anyway. But the majority of people aren't.''

Instead, he says, people don't start thinking about whether or not they'll have enough to produce a comfortable income at retirement until they are well into their 40s or maybe even their 50s. For many couples, those years are spent building an equity in their homes, raising children, and putting those children through college.

Still, retirement planning has to come sooner or later, and more planners are urging people to begin it sooner.

The problem with starting later is that many people discover they don't have enough money to produce an adequate income at retirement. One factor in determining retirement income is your place of employment.

``If you work for IBM or GE, you've got a pretty generous pension plan,'' says Yurachek, who is a partner in a small planning firm. ``But if you work for me, you've got a pretty small plan.''

Even social security may not have all the guarantees many people expect, he says. Some social security benefits are now being taxed, he notes, which was considered unthinkable a few years ago.

For most people, even a good pension needs to be supplemented by income from their own assets, whether it's an individual retirement account (IRA), a company-sponsored savings plan, or investments. But even those who have tidy sums stashed in such places have to plan carefully, since money historically has lost about half its purchasing power over 10 years.

Even people in their late 40s or early 50s can be hit by this phenomenon. Say you're living on $40,000 today and you plan to retire in 15 years. Assuming an inflation rate of 7 percent a year during that time, you'll need more than $110,000 a year to retire, using a multiplier of 2.8.

If you want to reduce that amount by expected payments from social security, the Social Security Administration has a way to find out how much those payments will be. By calling 800-937-2000, you can get a simple form to fill out. After you've sent it in, you will receive a statement of how much you've paid into social security so far, how much you can expect to have put into it by the time you retire, and how much you can expect to get at retirement.

The $110,000 will also be reduced by your company pension. Most companies will give annual statements of the amounts built up in pension accounts, and some will figure out your expected monthly retirement benefits.

Although many people - some planners say as many as 9 out of 10 - discover they won't have enough money to retire on, especially after the first few years of retirement, the shortfall can be made up with careful investing.

It is true that Congress has reduced some of the tax benefits of retirement-saving plans like the IRA and the 401(k) company-sponsored plans, but these programs still hold enough tax breaks to make them the best thing going for middle-income Americans. And if tax rates go up again, one day, the tax advantages of these plans well become even more valuable. This is why financial advisers tell people to put as much into these programs as they can afford.

If you are participating in a company-sponsored plan, take some time to review the investments. Most employees are given a menu of choices, usually mutual funds or annuities, that include investments designed for growth, income, and protection of principal. Workers in their 30s and 40s have more time to weather the ups and downs of the stock markets, so they can have more growth-oriented investments in their savings plans. But those over 50 should shift to income-producing investments designed to protect the principal and gains made earlier.

The sooner all this gets started, of course, the more time there will be to make changes, correct mistakes, and ride out the rough spots in your own life and in the investment climate.

Most of those retiring today, Yurachek says, are fully aware of the need for good financial planning for retirement; they were children or young adults during the Depression. But ``some of the future retirees have never seen hard times. You can talk to these people day in and day out and they don't believe you.''

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