Retirement Planning: What You Need To Know

Retirement Planning: What You Need To Know

The recession has caused a shift in how employers will handle benefits for their employees. Temporary workers are becoming permanent fixtures, making for a workforce that constantly rotates without the benefits that come with full-time employment. One of the biggest changes is occurring in retirement planning. Increasingly, employees are being asked to bear more of the weight of their retirement.

What's Defined Contribution?

When an employee enters into a defined contribution plan, the employer stipulates up front how much of the burden of your retirement they will share. In some ways, employees have more freedom of where and how their money is invested. For those who understand long term investment strategies, this is actually a kind of benefit. The risk comes into play when the assets that are part of the employee’s retirement portfolio drop in performance. This means that retirement planning now requires more attention on the part of the employee, and that anything less than careful management of your portfolio could lead to dire financial straits.

Employment Facts

The May 2013 employment numbers are in from the Bureau of Labor Statistics, and the situation is largely unchanged, except when you consider the rise in professional and business service jobs. The second largest increase occurred in the IT and technology sector, an increase of roughly 6,000 jobs. The largest change? Temporary workers made up 45.6% of the increase in professional jobs (That’s 26,000 temporary workers), pointing to an obvious shift in how worker benefits are dealt with. That leaves 31,000 workers added to the professional workforce, which is only a small fraction of the entire labor market. With a defined contribution plan, these new workers will have to adjust how they view their retirement. Higher medical costs coupled with mandated healthcare means that workers will increasingly bear the burden of long-term care. The solution is careful retirement planning.

What You Can Do

No matter your age, there are steps you can take right now to help plan for retirement. Use a retirement calculator and run some realistic numbers. Depending on your age, and your employment status, you might not get to climb to Macchu Picchu, but you can still live a fulfilling life. Create a list of the essentials, the things you need in order to feel well about retirement:
  • A house that’s paid off
  • Children that have settled their student loans
  • A working car (or other method of transportation)
  • Money for food, bills, and trips
How do you put a price tag on all of these items? The solution, analysts say, is to put away enough to replace 70-100 percent of your income when you retire. A 48 year old with $5,000 or less in the bank can earn well over $200,000 by the time he or she hits 70. That’s enough money to stop working for at least five years, or to use for trips to help ease the burdens of aging. Each person’s retirement goals are different, and not everyone can afford to put away $400 each month. Find the number that’s right for you, cut back on your “guilty pleasure” and work toward your future. Photo Credit: Shutterstock