ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, April 22, 1996 TAG: 9604230147
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
A recent survey reveals some wishful thinking by working people about the cost of living out their retirement years.
Consider these findings from Keyport Life Insurance Co. of Boston:
Some 66 percent of the individuals surveyed said they expect their standard of living in retirement will be the same or higher than their current working-years lifestyle.
But 13 percent save nothing for retirement and another 22 percent don't know how much they save. That's more than a third of the respondents.
About 25 percent believe they will need to save only $100,000 or less to retire and maintain their current lifestyle.
And 46 percent expect to meet their retirement financial goals.
The situation in the Roanoke Valley parallels the national survey.
"People generally don't have a clue as to what it's going to cost to retire," said Mike English, manager of the downtown Roanoke branch of First Union National Bank of Virginia.
He sees customers in their 50s who have saved $50,000 or $100,000, not realizing the retirement money must last another 30 years.
Those results are contradictory and disturbing, said John Arant, senior vice president of Keyport.
It's disturbing to him that many people haven't given much thought to their retirement years, much less as to how much they will need to save to maintain their standard of living.
Most people live 20 or more years after retiring from their primary jobs, he pointed out, and $100,000 is "not an awful lot of money."
"We may be entering a period of time when it may be more frightening to live beyond your life expectancy than to die earlier," Arant said. He added that Social Security as a percentage of income in retirement is much smaller than it was 10 to 15 years ago, so working people must start saving now.
How much money do you need?
A lot depends on your current lifestyle, Arant said. Some people live at a more modest standard than others and hence need less money to maintain the pre-retirement level.
But the secret, he said, is to begin saving for retirement early in life and to engage in proper financial planning.
The longer you wait to begin saving, the more you have to put aside, Arant said. "If you are younger, you really need to start investing now," he said. If you wait until age 55 to begin planning, he said, the monthly cost of saving runs very high.
That's because of the power of compounding, Arant explained. Given time, earnings will pile on top of earnings so that less money will grow to a much larger amount.
Saving is complicated by the impact of inflation on future dollars, Arant said. If present trends continue and inflation averages only 3 percent, he said, every dollar saved today will buy only 74 cents worth of goods by the year 2005.
The survey, he said, is "a wake-up call" because most people underestimate the amount that they will need in retirement. "We were shocked by it, shocked by what we saw" in the survey of attitudes, he said.
He said people must estimate the amount of money that it will take to pay their basic expenses, then calculate the amount that it would take to generate that income after Social Security.
In the past, he said, people didn't have to deal very much with the problem of retirement.
"Thirty years ago, not many lived to that age," Arant said. Two-thirds of all people who have ever reached the age of 65 are alive today.
The survey also found that nearly half of Americans who are not saving for retirement say they have no intention to save or are unsure when they will start.
Keyport said 46 percent of those now employed expect to work for pay when they've retired, even though only 13 percent of those who have retired say they resumed working to supplement their retirement incomes.
Asked to identify major sources of retirement income, Social Security was cited by 59 percent of retirees, while only 35 percent of working individuals believe it will be a major source of income for them in retirement. Working people are losing their faith in Social Security.
Seventy percent of workers cited 401(k) or employer pension plans and 36 percent identified Individual Retirement Accounts and Keogh plans as their major anticipated sources of income. By contrast, only 37 percent of retirees mentioned 401(k) or employer pension plans, and only 17 percent rely on IRAs or Keoghs.
John W. Rosensteel, president of Keyport, said the current lack of adequate retirement saving could to some degree be attributed to working Americans' intention to continue working after retirement.
But he said it may also reflect their more immediate financial obligations, such as saving to buy a home, the costs of a growing family, saving for their children's college educations and repaying their own college loans.
Rosensteel said his company recommends that individuals start saving now if they have not already done so.
In addition, families should work with a financial specialist to determine how much money they need to save, which will vary depending on age and other factors.
The key, the company said, is to have a retirement savings strategy that utilizes all available forms of saving and investing, including company pensions, 401(k) and similar plans, mutual funds and annuities.
English said too many people think they should put their money in certificates of deposit and savings accounts, when "they need to look at some other avenues."
First Union offers Keyport and Western Bonus annuities, which have tax-deferred earnings. English also recommends Evergreen mutual funds, which are somewhat riskier because they are not backed by deposit insurance but have opportunity for growth.
English said the Evergreen Ultra-Advantage annuity offers tax-deferred savings with an opportunity to invest in a variety of mutual funds.
LENGTH: Long : 112 lines ILLUSTRATION: GRAPHIC: Chart by Robert Lunsford: Retirement savings. color.by CNB