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Waiting to save could cost you big |
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By SAGHIR ASLAM, Columnist
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It’s a common problem. Even though we know it is best to start saving for retirement at a young age so our savings have long periods to grow and compound, it is difficult to find money to save when we are getting established and raising families. Thus, it is easy to postpone saving, waiting until children are grown to start saving significant sums for retirement. However, if you wait until your 40s or 50s to start saving, it can be very difficult to save a large enough portion of your income to ensure adequate savings for retirement.
There may also be other obstacles that could delay your savings for retirement, based on a recent study of individuals who were between the ages of 51 and 61 in 1992. During the 10-year period ending in 2002, 40 percent of those individuals were diagnosed with a major medical condition, one-third developed work disabilities that curtailed employment, 20 percent were laid off, 10 percent became widowed and 3 percent were divorced. If a spouse’s health problems and job loss are also factored in, 87 percent of married adults between the ages of 51 and 61 experienced a major problem. Especially hard hit were individuals with limited education. The financial repercussions of these types of events can be serious. For married individuals, it was estimated that a serious medical condition reduced household wealth by 13 percent, a work disability by 14 percent, a job layoff by 19 percent, being widowed by 11 percent and divorce by 38 percent. For single individuals, a serious medical condition reduced household wealth by 18 percent, a work disability by 30 percent and a job layoff by 23 percent. Thus, if you wait until 10 or 20 years before retirement to seriously start saving, you may find that unplanned circumstances – such as a health problem, job layoff or divorce – can prevent you from saving for retirement as well as cause you to use whatever retirement savings you do have. It could also have an impact on your other retirement resources. Benefits earned under a defined-benefit plan tend to grow rapidly during the later working years, since benefits are often tied to years of service and salary earned near career end. Social Security benefits are also tied to lifetime earnings.
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