Wednesday, June 07, 2006

Retirement Jitters

I am 27 and I'm scared to death of retirement. I know, I know, I have ages until I retire and why worry now? I am comfortable now but I know what it is like to live on welfare and to stretch every dollar to the max. My family of 4 lived on my father's salary of about $34,000 for most of my childhood. I just don't want to have to deal with the same situation of making difficult choices about buying necessities when I am 80.

Plus, there are those seriously scary stories in the papers about Americans not saving enough for retirement. I would think it would spur anyone to get out the financial calculators and start planning. I'm not sure exactly how much I will need at retirement as there are a number of factors we just don't know right now like:

1. Future inflation rate
2. How long will I live?
3. Will I have a spouse?
4. How long will my spouse live?
5. Medical or health issues when I am older

Any of this could impact my retirement budget. I figure that about $1.5 million is pretty safe as a goal for retirement. The funny thing is that saving $1.5 million for retirement wouldn't even give me a luxury lifestyle or even an upper middle class lifestyle. I think it would probably afford me a lower middle class to middle class lifestyle. Weird, huh? $1 million dollars seems like a lot.

Currently, I've set up with the following budget. I recently made about $45,000 a year but that was pushed up to $55,000 a year (yay!) this year. What I have total in assets are:

1. $11,300 in 4013b plan
2. $1540 in a CD
3. $4000 in Emigrant Savings
4. $3030 in Citibank Savings
5. $2,000 in checking account

TOTAL $21,870

What I usually put away or spend per month:

1. $600 RENT
2. $150 Emigrant Savings Account
3. $100 Student Loan Sallie Mae
4. $100 Student Loan with School
5. $700 my average credit card bill per month
6. $700 4013b plan contribution
7. $400 Petty Cash

TOTAL $2750

I have it pretty sweet in terms of rent, health insurance and credit cards. I used to live with my parents where I paid no rent but now I live with my boyfriend where I make a monthly contribution of $600. My job pays fully for my health insurance and I don't have to pay any premiums. I paid off my awful credit card debt immediately after college so I have no credit card debt. My take home pay of which the 4013b contribution is already deducted is $2686.54 per month. As my expenses without the 4013b contribution are $2,050, I can expect to save about $636.54 a month. This is the optimal formula but I usually end up saving less than that. Whatever is leftover, I move into my Citibank esavings account.

What I would really like to so is:

1. Open a Roth IRA - stock index plan with Vanguard
2. Lower my monthly expenses
3. Pay off my student loans so I can start saving for my parents' retirement

The thing about my 4013b plan is that you only have the option of choosing annuities. I think most people agree that in the long run annuities are not going to pay out as much as a stock index mutual fund. I have the option of choosing indexes within the annuity structure but the earnings have really sucked. I see no load index funds making gains of over 10% a year and I'm stuck with measily 5-6% gains. It's a total rip-off but I have no choice. This is the reason why I would like to open a Roth IRA but it's really hard to motivate myself to pull money out of my savings to do this. I think I may wait until I have saved a little more to pull it into a Roth.

I think I spend entirely too much on food and "necessities". I'm not a huge clothes or accessories shopper so I know my money mainly goes to eating out. I think it is hard to cut back as my boyfriend makes much more money than I do and we are usually going to expensive places. I just don't want to be the nag that holds him back especially when he is paying most of the rent so it's a tough situation. I try to cook one or two meals during the week (cooking is probably too sophisticated a term for what I do) and my lunches consist of Subway or Blimpie's. But occassionally I do splurge on Starwich ($15 a sandwich!) so maybe I can cut back on that. Controlling extraneous expenses are difficult in New York City especially when you live in an expensive neighborhood!

I am whittling down my student loans but I still have a ways to go. I can probably pay them all down now but since I have locked in an interest rate (3.625%) that is lower than my current savings rate (4.75%), I see no point in paying down my student debt when I can save the money and accumulate more interest. I have about $3,800 left in my Sallie Mae account and I have about $3,000 left in my other school loan. I pay about $100 a month on each loan. If I wait one more year, the interest rate on my Sallie Mae loan lowers by one percentage point.

The main reason why I want to pay down my student loans is that I want to set up a separate account for my parents' retirement because let's face it, my parents have not saved up enough for retirement. I'm not sure why my parents are retiring at 55 (next year) when they haven't saved up enough. I'm trying to convince them to work at least until they get to 65. I come from a very long lived family so I think my parents will be around until their late 90s. My mom has about $200,000 in her retirement account. The really good thing is that they do own their home and will completely pay off their 30 year mortgage in September (yay!) so that is another $400,000 in equity. My dad owns his store and is planning on selling his lease and store so I guess that is another $100,000? I know they can live frugally but I worry especially about their medical expenses.

I think I will start to tuck $100.00 a month for them in an account. I wish I could get a tax deduction on this or get a tax deferred account in my parents' names but the main thing is to keep them from finding out about the hidden stash. My sister is also going to contribute $100 a month. So at $200 a month for about 10 years can get us a pretty good emergency stash of at least $30,000 to pay for emergency medical expenses.

I know I'm totally psychotically scary about this but keep in mind that I worked at a community district office helping seniors get benefits! I really do not want to be a senior struggling to get by and not being able to survive without government benefits because who knows how long it would be before the government totally does away with social welfare programs? My generation is the most apathetic generation of all time and I doubt enough fuss will be raised by the time my generation's benefits start being totally wiped out. ARGHHHH!!!!

Have I mentioned that I am paranoid about everything?

2 Comments:

Anonymous Anonymous said...

i think i know you... i thought the post office had a decent retirement package.

6/30/2006 11:04 AM  
Anonymous Anonymous said...

I don't think you are paranoid- I think you are smart. I'm also saving for retirement with the assumption SS won't be there. In addition, I'm terrified of the amount my parents have saved. I worry about taking care of them as well as myself in a few years. Overall, sometimes I wonder if my friends are right when they go out for treats and don't save, but the peace of mind I'll have in few years of budgeting myself is more than worth it.

6/19/2007 3:42 PM  

Post a Comment

<< Home