I remember when the handoff from Mom and Dad occurred. Dad had managed the money over the years, and typical of the World War II generation, he just quietly went about “his duty.” That is, until age and Parkinson’s took their toll. Mom had never handled the day-to-day finances, so they asked if I could step in and oversee them. While they didn’t talk a lot about money matters during our growing-up years, it became clear they had pretty much got the big picture right.
Dad worked hard for many years running a small practice as a certified public accountant. Mom stayed home shuttling us off to parochial school and the various after-school events we were involved in. It was a pretty typical middle- to upper-middle-class life. They made financial sacrifices for us kids, but they also prudently saved for their future needs. They made a conscious decision to live within their means — even below them — so they could save for the future. I remember Dad mentioning to me one time that maybe it would have been a good idea to “move up the hill.” He said it would have cost $4,000-$5,000 when they were considering it. I laugh at what it would take today! But they decided to stay put, knowing they had other priorities.
It was these constant decisions to live within their means that allowed them to save for their retirement years. And that has been important. Not only were they able to pursue activities they enjoyed during their active retirement, but the resources were available to provide for the extra care they needed when they became more dependent.
While each person’s retirement plans will vary according to their situation in life, funding retirement is an issue we all need to deal with. And that need is greater than ever. With the baby boomer generation moving into retirement years, and a slower birth rate, pressure will continue on the Social Security system. While it is expected that the system will stay intact, it is also anticipated that benefits will be reduced at some point to keep the system afloat. Further extensions of the retirement age, a reduction of benefits — or both — are expected. At the same time, while there are still certain professions that provide an old-fashioned pension, the vast majority of employers continue to shift to plans like 401(k)s, where the employee is responsible for the bulk of the savings.
Saving needs to become a planned part of our “spending.” In the Bible, the principle of saving is spelled out clearly in the story of Joseph and Pharaoh in Genesis 41. Egypt is to undergo seven years of plenty to be followed by seven years of famine. What does Joseph do? He gives instructions that the people are to save 20 percent of their production during the good years in order to meet their needs during the years of famine. Joseph anticipated the people’s future needs and put a saving plan in place to meet those needs. We should do the same.
How much will you need in retirement? Financial planners often use a general rule of thumb that we will need annual income equal to 80-90 percent of our pre-retirement income. Of course, everyone’s situation will be unique. Visit VeritasFinancialMinistries.com and use the retirement plan calculator to develop a more customized plan for your situation. It will help you determine the asset base you’ll need to reach your goals.
Phil Lenahan is the president of Veritas Financial Ministries (VeritasFinancialMinistries.com) and the author of “7 Steps to Becoming Financially Free” (OSV, $19.95). Submit questions for columns to email@example.com.