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Save now or struggle later

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MADISON, Wis. (7/25/11)--A recent study of people aged 66 to 69 found that 51% of singles were likely to run into serious financial trouble in retirement (National Bureau of Economic Research July 13). Although married couples fared better in the study, they too were vulnerable. More than one of five are in danger of outliving their savings. But those facing the greatest risk of running out of money before they die are 73% of single women without a high school diploma. To prevent this, the message--as always--is save early, save often, save as much as you can. Douglas Rice, Ph.D., president of the Institute for Financial Planning Education, Castro Valley, Calif., is a strong advocate of this approach. In an interview with MoneyMix(July 2011), the Credit Union National Association’s online periodical for young adults, Rice said, “The biggest danger of pushing off retirement savings is that the amount you need to save to retire goes up every year, so the problem gets bigger and harder to solve. So by putting saving for retirement off, you end up making it worse and it can get so bad that you lose hope.” To put it differently, said Rice, “People in their 20s are in the best position to benefit from savings. This is because savings compound over time, and they have more time." The difference can be considerable. For example, you can build a $200,000 nest egg in 40 years by investing $100 a month at 6%. But delaying 20 years before pursuing the same goal requires a monthly investment more than four times greater--$431. The editors at MoneyMix offer this advice to young people who wish to avoid the fate of so many people in their late 60s today:
* Try to invest at least 10% of your income for retirement. If your budget doesn’t allow that much, get in the habit by setting aside even as little as $1.50 a day. * If your employer offers a 401(k) retirement plan, participate. This tax-deferred savings vehicle offers a consistent and automatic way to save for retirement. In addition to the elective deferrals you make, your employer also may offer matching contributions up to a certain percentage--that's free money to build your retirement fund even faster. * Devote part of every raise to your future. For example, if you get a 3% raise, put one-third of it toward your retirement goals. If you do this consistently over your working life, you'll accumulate a tidy sum by the time you’re ready to start making withdrawals.