Where do most people get the money to invest for their future? Some receive lump sums, such as pension distributions, settlements, and inheritances. A few lucky people win the lottery or some other big prize. Most people, however, get money to invest the old fashioned way: they earn it and then they save it.
Rutgers Cooperative Extension recently hosted one of 12 regional conferences held around the country to kick off the national Save For Your Future campaign. This campaign provides information and educational programs about the need to plan and save for retirement and other life stages.
The Save For Your Future campaign encourages Americans to take 4 basic steps to secure their financial future: · Calculate how much money you need for retirement or other goals. · Plan how to accumulate the money and other assets to help meet your needs. · Act to implement your plan and save money. · Reassess your financial needs and the progress of your plan every year during the three-month period between the time you receive your Social Security benefit statement and your birthday.
Each year, about 3 months before their birthday, the SSA mails workers a personalized benefit statement that indicates the amount that they will receive when they reach age 62, full retirement age (gradually increasing from age 65 to 67, depending on a worker's date of birth), and age 70. On average, Social Security provides only about 40% of a worker's pre-retirement income while financial planners often recommend accumulating enough money to fund at least 70% to 80%.
The Save For Your Future (SFYF) campaign was designed to encourage workers to save to make up the difference between what they need and what Social Security and/or a pension will provide. In 2002, the average Social Security retirement benefit was only $895. Workers who retire before full retirement age (FRA) receive less than those who wait until FRA because their benefit is permanently reduced.
So how do folks find the money to save...and ultimately invest? SFYF campaign officials advise starting small because every dollar counts. Try eliminating things that you can live without and changing spending habits. An example is brown bagging a lunch to work one or two days a week instead of eating out. Another is buying 12-packs of soda on sale instead of using expensive vending machines. Avoiding credit card interest charges by paying bills promptly also is recommended.
Setting and prioritizing goals can provide the motivation to reduce spending today in order to save and invest for a secure future tomorrow. Be sure to be specific with a date and a dollar cost. An example is "save $8,000 for a used car in 2005." Knowing your timeline can help you choose appropriate places to put your money (e.g., Treasury bills for short-term goals and stocks for goals 5 or more years away). Recent research, however, with respondents to Rutgers Cooperative Extension's online Financial Fitness Quiz indicates that many people lack specific, written financial goals. It is like they are taking a road trip without a map or itinerary.
Another recommendation from the SFYF campaign is to take advantage of retirement benefits that your employer offers. Contributions come right out of your paycheck, making it easy to save on a regular basis. Some employers also match a worker's contribution 25 cents, 50 cents, or even $1.00 for every dollar saved. This is "free money" that should not be missed. If you change jobs, roll your retirement accounts over into an IRA or new employer's plan to maintain their tax-deferred status.