Almost every day, we read about the Illinois’ pension crisis.
The State of Illinois, depending upon whose methodology you prefer to quote, has funded less than 50% of its pension liabilities, and Moody’s Investor Services last year calculated the unpaid bill at over $133 billion.
The crisis is largely the result of several years of over promises, under savings and poor market returns. It will take time to resolve, and unfortunately, when the negotiations are done, there will be plenty of pain to go around. Still, perhaps, there is a lesson for all of us in this crisis…. and that is, as the number of defined pension plans decline, the market under performs and we all live longer, we need to pay more attention to and take more responsibility for our own financial futures.
Today, many of us, due to longer life expectancies, will spend almost as much time in retirement as we spend in the work force. To fund 30 plus years of retirement, we need to aggressively save for retirement each and every year. While everyone’s situation is unique, using the historic 4% portfolio withdrawal rule of thumb, you will need to accumulate over $1.2 million during your working years to fund $50 thousand annually in retirement. To save that much, many advisors recommend setting aside between 10 and 15% of your annual salary each year, starting with your first job. Starting early and saving regularly is the key to accumulating the funds and to taking advantage of the magic of annual compounding.
Saving for retirement is not a simple, easy or without sacrifice, still it is essential. To learn more about money management in general, I would recommend starting with a short read: The Little Book of Main Street Money, by Jonathan Clements, or for more technical help, Charles Schwab’s book, You’re Fifty-Something – Now What. In any event, the key to success is to get started.
If we would like to talk about your pension or financial future, please contact me at Info@AskRFA.com