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Preparing for Retirement

Experts give advice on preparing financially and emotionally for the retirement years.

Have a Good Retirement Plan

To complicate retirement planning, traditional pension plans that once helped fill retirement reserves are now on the decline. More companies used to offer defined benefit plans, which would give workers a certain percentage of their preretirement income upon retirement, depending on their salary and length of service.

In the 1980s, firms began to turn to defined contribution plans, which depend upon employee and employer contributions, and the health of the stock market. Plans such as 401(k), 403(b), and profit sharing fall in this category.

"The investment risk used to be borne by the employer in the defined benefit plan. It's now being borne by the employee in the defined contribution plan," says Vanderhei, who is also a professor of risk, insurance and health care management at Temple University in Philadelphia.

"Before, if an employer promised you $50,000 a year for the rest of your life, they'd give you that $50,000 regardless of what happened to the stock market. Now, if the stock market basically tanks, you're going to have a harder time having sufficient retirement income than had you had a defined benefit plan," adds Vanderhei.

Employees with defined contribution plans do have more control over their investment portfolio, but experts like Hushbeck worry that many average workers do not have the financial savvy or the comfort level to make investment decisions.

"Many employees are paralyzed by the choices that face them," she says. "Everything that I see, hear, and read about happening on [Capitol] Hill suggests that the system is becoming ever more complicated, as there are more and more types of accounts being created or proposed."

Many workers, particularly the young and the poor, are failing to sign up in defined contribution plans, and are thus missing out on the opportunity to save for retirement, says Hushbeck.

Setting Up a Retirement Plan

To set up a successful retirement plan, the experts recommend the following:

  • Do the research. Find out what kind of plan your employer offers. If you are self-employed or if your employer does not offer a satisfactory retirement plan, check out options at the bank, or visit with a financial planner. Be sure to ask about fees that may be involved with setting up new retirement plans.
  • Join an investment club. In addition to educating yourself with retirement seminars and calculators and staying abreast of current events, it may help to make investing a community affair. "A lot of people don't get really serious about [retirement plans] unless they make it social and fun." says Hushbeck. "Get together once a month, or once every three months to share tips.
  • Trust your instincts. You have the right as a mature person to make your own decisions and judgments, says Hotes, urging people to avoid thinking of themselves as powerless. Think of your options, and if it helps, turn to a trusted friend or financial advisor for support. Also use vigilance in trusting people with your financial and investment portfolio in much the same way you teach kids to be wary of predators on the street.
  • Manage your resources wisely. As with the old saying, "Don't put your eggs in one basket," Robert Willis, PhD, professor of economics at the University of Michigan advises against putting all of your wealth in one company's stock. At the same time, he doesn't recommend hiding your money in a mattress, as the funds will not have a chance to grow.

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