It is more difficult today than ever before to be prepared for a comfortable retirement.  The following article gives some insight on the differences for those getting started with retirement planning today, and what to focus on for your future.

It’s Harder to Get Started Today

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Over the past weekend, I had a long conversation with a man in our community who was nearing retirement age. He felt comfortable about his own coming retirement, but he seemed very pessimistic that his children would ever be ready to retire. “They just don’t know how to save money,” he told me.

I told him that, although I agreed with him that young people should save more, there is also a strong case that it is much more difficult today for a young person to establish themselves financially as he did when he was a young adult.

He looked at me strangely. “What do you mean?” he asked.

So, I laid it out for him, piece by piece. Afterward, it occurred to me that the entire discussion might make for a good post here, particularly with some specific research to back it up.

Real wages Let’s start with income. In 1970, the average wage earner took home $312 per week (in 1982 dollars). In 2004, the average wage earner brought home $277 per week (in 1982 dollars) - and it’s still falling. That means that, once you factor out inflation, the average wage earner in 1970 brought home about 18% more than the average wage earner today.

Home prices Even if you adjust for inflation - and even if you take into account the crash of the housing bubble from 2007 to today - the median price for a home in the United States has gone up more than 50% since 1970. Remember, that number accounts for inflation, so what that number actually means is that the cost of a home requires 50% more of a person’s paycheck than it did in 1970.

Education prices The cost index of an average undergraduate education since 1970 drastically outpaces the growth of the Consumer Price Index. In short, disregarding inflation, the cost of an undergraduate degree today is roughly 30% higher than it was in 1970.

Other essentials In order to compete in today’s workforce, a young person often must have items - paid for out of their own pocket - that weren’t needed in 1970, including a cell phone, a computer, and home internet access. Often, when searching for work, it becomes very difficult for a young person to compete without these extra expenses.

So, to summarize, in order to have housing and an education comparable to what a young person had in 1970, they must spend 50% more on housing, spend 30% more on education, and do it all while earning about 18% less money. That doesn’t even include the extra expenses needed to compete.

I look at my own parents for an example. My parents purchased the house I grew up in for $20,000 - and that included seven acres of land. At the time, that was approximately what my father earned in a year. Today, if I were to purchase a similarly-sized house with seven acres of land, I would be spending well over $100,000 - significantly more than an annual salary.

My parents were also able to find good work without the cost of a college education. Today, the jobs they both had would be completely unavailable to someone if they did not have a college education, putting significantly more expense on the back of a young person today.

“Get tough!” This isn’t meant to be an excuse for people of my generation not living up to their potential. Instead, it’s an encouragement for everyone to not obsess over comparing the success of young people today to the things that young people in the past had at a similar age.

Simply put, things that were quite possible for a 25 year old in 1970 - owning their own home, having a fully-paid-for education, having a high-paying job - are much more difficult for a 25 year old today.

It’s not so much a matter of getting tough. It’s more of a matter of recognizing that comparing the way things were when you were younger to the way things are now for a younger person isn’t really a valid comparison.

Rather than focusing on results, look for signs of progress and for the status of the journey as a whole. It’s not even remotely fair to compare results - the income you have, the house you have, the education you’ve paid for - between eras, so instead focus on positive steps in the right direction.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following are a few sound strategies for catching up on your retirement savings.

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Retirement Savings: Five Tips to Catch Up

1. Boost your savings to the max

For once, the taxman is willing to give you a big break. You’d be foolish not to take advantage of that, right? Retirement savings accounts such as 401(k)s and IRAs allow workers to sock their hard-earned money away on a tax-deferred basis. In a 401(k), employers will typically match your contribution, too.

Make sure to contribute as much as you can to these accounts-at least up to the company match in your 401(k). The limit for contribution to an IRA this year is $5,000. Depending on annual income, IRA contributions may be tax deductible. You can still contribute through Apr. 15 to take deductions for the 2006 tax year.

Better still, investors 50 and over are allowed to make “catch-up” contributions to their tax-advantaged retirement accounts. These investors can add another $5,000 to their 401(k) in 2007, and an extra $1,000 to their IRA. Many investors may also want to consider a Roth 401(k) or IRA instead. Contributions to Roth accounts aren’t tax-free, but withdrawals are.

2. Get your assets into alignment

A well-diversified portfolio can increase the chances your assets will participate in market booms and help insulate your savings against the inevitable busts. Check your asset allocation and make sure it’s right for you. A smart portfolio might have exposure to a variety of asset classes, including domestic stocks, international stocks, bonds, and more.

3. Cut costs on investments, too

Just as proper diet and exercise are good for your health, reducing expenses is one obvious way to save more for retirement. People looking for bargains can find them in all sorts of places-even within their own investment portfolios.

4. Embrace automation

Now that you’ve got your retirement plan back on the right track, make it last. Your employer probably already makes 401(k) deductions automatically. You can also sign up with your financial institution to have money transferred electronically each month from your checking account into an IRA or taxable account.

5. Rethink your mortgage

Your house could help you save a little extra for retirement, too. If you have substantial home equity, you might want to look into refinancing your house and investing the difference in stocks and bonds, recommends Ed Fulbright, a Durham (N.C.) financial planner. Over a 15-year time frame, investors would have a good chance of boosting their investment returns, Fulbright says.

In fact, paying off your mortgage before retirement might be an outmoded ideal, as long as you get a fixed interest rate. Keeping a mortgage into retirement can help protect against inflation, says John Scherer, principal of Trinity Financial Planning in Madison, Wis. “If you’re 50 years old and get locked in, and inflation goes up over time, you’re paying off that mortgage with cheaper and cheaper dollars,” Scherer explains.

There’s no magic solution for workers who have fallen behind in their retirement savings, experts say. But the sooner you can start the “catch-up” game, the better off you’ll be.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

No matter what stage of life you are in it is important to start saving and investing early. Even those who started saving in their 40s had, on average, $230,000 more than those who started saving in their 50s or later. The following steps are geared towards people who are still working but are close to retirement, but the advice makes sense for people of all ages.

A Happy Retirment: 6 Steps That Work

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Six Steps

Live modestly: This was the top “best step” listed by retirees who said they were highly satisfied with their lives; 39 percent said they did not spend beyond their means. One way to rein in spending is to create a budget using store-bought software such as Quicken or a free online service such as Yodlee MoneyCenter (www.yodlee.com). Those programs help you track your spending and your progress toward meeting saving goals by consolidating your financial data from banks, credit-card companies, and brokerages.

Maximize your savings: Even if you don’t have a defined-benefit plan, regularly contributing to a 401(k), 403(b), IRA, or other investment vehicle pays off, our satisfied retirees told us. (Saving too little was a regret of 27 percent of dissatisfied retirees.) At 50 and older, you can put as much as $22,000 into a tax-deferred, traditional 401(k) plan or after-tax Roth 401(k) or their 403(b) equivalents in 2010.

Reduce debt: Thirty-eight percent of retirees owed $25,000 or more on their mortgages. But 74 percent of retired respondents who were free of major debt reported being highly satisfied with their retirement. For greater peace of mind, pay off your debts before retiring. Even a low-rate mortgage can be a burden if other expenses rise and your income-producing assets falter. Notably, debt-free retirees had a higher median net worth than those with debt: $843,000 compared with $717,000.

In the current economic environment, accelerating payment of your mortgage can be a wise investment. Most certificates of deposit, bank accounts, and other safe savings vehicles are paying less than 2 percent, so putting your money into additional payments on a 5 percent mortgage instead offers a better return (though you’ll give up some tax deductions on mortgage interest). By making extra principal payments, you can whittle down your loan’s interest cost and term handsomely. For example, adding $100 per month to payments on a 30-year, $150,000 mortgage with a fixed rate of 5 percent reduces the total interest by almost $35,000 and cuts the loan’s term by 6 1/2 years.

Don’t invest too conservatively: Taking on even a moderate amount of risk pays off. Median net worth for retirees who said they took a middle-of-the-road approach was $836,000 vs. $671,000 for conservative investors. Notably, the difference in net worth between self-described moderate and aggressive investors was relatively small: a $57,000 advantage for the more aggressive. The lesson: You don’t have to go out on a limb to get the best return. Diversification will help reduce your risk.

Study your options: When you design your dream retirement, also devise a Plan B in case you’re forced to retire early or can’t sell your home (a predicament of 8 percent of surveyed retirees). Your alternative plan might include a more restrictive budget or a different retirement location. To determine your Social Security benefits at different ages, go to www.ssa.gov.

A major issue will be health-care coverage. You can move to your spouse’s insurance plan, find a new job with health benefits, extend your own employee coverage under the COBRA law (go to www.dol.gov and type “cobra” in the search box for details), or look for private health insurance. If you go that last route, try to get group coverage through professional or other membership associations.

Take the intangibles seriously: Stress affected overall satisfaction in retirement even more directly than net worth, our survey found. A quarter of retirees cited non-monetary stresses such as family relations, poor health, a loss of identity, and boredom. So before you retire, develop hobbies and line up volunteer work, trips, or part-time jobs. Strengthen your personal connections outside the workplace. And, of course, do what you can to maintain good health.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Planning for retirement can be a daunting task in the face of economic uncertainty.  The following tips can help you put things in order to protect your nest egg. 

Last Minute Retirement Tips

By Stacey L. Bradford
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1. Adjust Your Asset Allocation

Whether retirement is six months away or three years down the road, prospective retirees need to take a good hard look at their portfolio in order to determine if it consists of the right investment mix. Keep in mind that a retirement stash may have to last 30 years. So it’s important that the portfolio’s asset allocation isn’t too conservative.

In fact, the biggest mistake retirees make, especially during a bear market, is to sell all of their stocks in favor of more conservative bonds. According to a recent study by investment management firm T. Rowe Price, those who do so are virtually guaranteed to run out of money during their lifetime since the portfolio won’t be able to keep up with inflation.

In fact, according to T. Rowe, a typical retiree should shoot for a mix of 55% stocks and 45% bonds. Of course, everyone’s risk tolerance is different and other factors, such as pension distributions and the equity stake they have in their home, also need to be taken into consideration.

2. Plot Your Distributions

Before you stop working, plot out how much money you’ll take each year from both your retirement account and Social Security. However tempting it may be to tap into these funds as soon as retirement hits, there are huge financial advantages to holding off for as long as you can, says Daniel Thomas, a CPA from Newport Beach, Calif.

T. Rowe’s study shows that a recent retiree who withdraws 4% from a 401(k) or IRA during the first five years of retirement (and increases his withdrawal amount by 3% each year to keep up with inflation) while his portfolio has an average return of less than 5%, has just a 43% chance of his money lasting for the next 25 years. In a nutshell, if one takes the recommended distributions during a bear market, the chances of his money lasting during retirement are greatly reduced. Should he put off tapping into his investments until the market recovers, or reduce his withdrawals significantly, he can expect to more than double his chances of affording retirement.

As for Social Security, Uncle Sam allows you to start receiving benefits at age 62. But if a retiree can afford to wait until full retirement age (for those born between 1939 and 1942, it falls during your 65th year; for those born between 1943 and 1954, age 66), the government will reward them with a “delayed retirement credit” that adds 8% to his or her benefits each year until age 70. Use the Social Security Administration’s retirement planner here to help you figure out when to start receiving your benefits.

3. Scale Down Your Lifestyle

One of the best ways to make money last during retirement is to scale back on expenses and stick to a budget. In the past, one of the easiest ways to achieve significant cost savings was to trade in a large home for a smaller one. Given the housing slump, that may not seem possible these days since homeowners can’t count on fetching the rich prices they had hoped for just a year or two ago. Not to worry, says Bill Losey, author of “Retire in a Weekend.” Most retirees have been in their homes long enough that they can afford to sell their properties for a bit less and still realize healthy profits. And if they buy a place in a more affordable part of the country, they’ll certainly come out ahead. “By downsizing, my clients save between $750 to $1,000 a month,” Losey says.

If moving isn’t an option, then retirees will need to cut back on spending elsewhere. Losey recommends trading in large expensive cars for more economical ones. Another cost-saver: Postpone a pricey vacation until the stock market recovers.

4. Sign Up for Medicare

Health care is one of the biggest expenses retirees face. The first thing a prospective retiree should do is check if his employer offers retiree health benefits or if supplemental insurance will be necessary. The next thing: Get a handle on the registration rules for Medicare. While the government’s health insurance for seniors has many attractive features - including its relatively inexpensive premiums - it also has very strict rules and will penalize people by adding an additional 10% to premiums for every year they don’t sign up on time.

Here’s what you need to know: The Medicare open enrollment period starts three months before a senior turns 65 and end three months after his 65th birthday. Miss the six-month window and retirees will go without coverage until the following general enrollment period, which is Jan 1 through March 31 of the next year. The only exception is for folks who are working full time and are on their employer’s health plan. Their open enrollment period starts as soon as they officially leave the work force. Also, be aware that Medicare doesn’t cover dental expenses. That’s why Sal Cocivera, a financial advisor with Lincoln Financial Advisors recommends that clients get a thorough checkup and take care of any costly procedures, including root canal and crowns, while their employer’s insurance still covers them.

5. Buy Long-Term-Care Insurance

Finally, the biggest threat to one’s nest egg isn’t a bear market but an extended stay in a long-term-care facility. The average nursing home costs more than $74,000 a year, according to life insurance provider Metlife. To make sure an accident or just deteriorating health doesn’t wipe out your savings, consider buying long-term-care insurance.

Be warned, however, that purchasing a long-term-care policy in one’s 60s will be expensive. Those high premiums will be worth it, though. Should you fall ill, for example, your spouse will still have assets to live on, says Lincoln Financial Advisors’ Cocivera. While prices vary quite a bit, this is one area where one shouldn’t skimp. Some of the least expensive policies may leave out important benefits, including inflation protection and the freedom to hire any home health-care aide you want.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.