Saving, not the Lottery, is the Ticket to a Financially Secure Retirement
ATLANTA, April 6, 2011 /PRNewswire-USNewswire/ -- Recent news of a $319 million dollar Mega Millions win in New York has people around the country fantasizing about early retirement and lifelong financial security. And while winning the lottery has been a dream come true for a handful of people, most of us will spend far more on lottery tickets than we will ever get in return. If winning the lottery is the foundation of your retirement plan, you might consider some other strategies, since the odds of winning the Mega Millions Jackpot are 1 in 175 million. For Powerball, the odds grow to 1 in 195 million. Instead of spending $10 a week on lottery tickets, if you invested that same money in a saving or retirement plan with an average return of just seven percent, you would have more than $7,500 after 10 years and $35,000 after 25 years.
"The key to saving for retirement is making steady contributions over time," said Mechel Glass, director of education for CredAbility. "Skipping your morning stop at the coffee shop and bringing your lunch even a few days a week can add up to thousands more in retirement savings."
CredAbility offers other tips to help consumers plan for a financially healthy retirement.
Estimate retirement income needs
Even if you have paid off your mortgage, the day-to-day expenses of maintaining your lifestyle can be expensive. You may need 70 percent or more of your pre-retirement income to live comfortably. The AARP website (www.aarp.org) has a retirement benefits calculator where you can estimate what you will need.
Contribute to employer-sponsored retirement plans
Look into the retirement planning options offered by your employer. Some have pension or profit sharing plans where they contribute on your behalf. If your employer offers a tax-sheltered savings plan, such as a 401(k) or a 403(b) for non-profit organizations, you can contribute as much as $16,500 pre-tax dollars for 2011 ($22,000 if you are more than age 50). Your employer may also offer to match some of the money you contribute, increasing the amount you are saving for retirement. You save taxes in the current year and build a nest egg for the future.
Start your own retirement savings plan
An Individual Retirement Account (IRA) or Roth IRA account can be a great way to save for retirement. You can contribute up to $5,000 ($6,000 if you are more than age 50) and there may be tax advantages to making contributions. While there are benefits to both types of IRAs, the biggest advantage of a Roth IRA may be that retirees can take tax free withdrawals on the principal and all earnings.
Remember to pay yourself first
One of the best ways to save for retirement is to make it a priority. Arrange to have your retirement savings automatically deducted from your paycheck and deposited into your account. Each time you get a raise, increase the amount you are contributing until you reach the maximum. As you pay off loans or other debts, continue making those payments into your savings or retirement account.
Reduce Spending; Increase Saving
One of the fastest ways to accumulate money for retirement is to reduce your debt so that you can reallocate those funds to retirement savings programs. If you limit your coffee shop stops to just once a week instead of every day, put the money you save into an account. Bring your lunch to work instead of eating out and you can save $30 a week or more. You'll save $1,500 in just the first year. Invested with 7 percent annual returns, that $1,500 will double in just 10 years.
If you still think you'd rather try your luck with the lottery, CredAbility offers the following tips:
- Purchase your tickets from your allocated entertainment budget, which means making trade-offs for a weekly movie out or a couple of at-home rentals.
- Buy only one ticket per drawing or play less often -- buying additional tickets does not substantially increase your odds of winning.
- Play only after you have paid all your monthly bills, including more-than-minimums on credit cards, and you've put 10 percent into a savings account.
"Think about your financial future and make smart choices," Glass said. "Over the years, some of the few people who have won the lottery have ended up in even worse financial shape because they didn't practice sound financial management. Don't gamble with your financial security."
CredAbility is one of the leading nonprofit credit counseling and education agencies in the United States, serving clients in all 50 states plus the District of Columbia, Guam, Puerto Rico and the US Virgin Islands, in both English and Spanish. In addition, we provide in-person counseling through our branch network of 28 offices located across the southeast.
Founded in 1964, CredAbility is a family of Consumer Credit Counseling Service agencies that includes CCCS of Greater Atlanta, CCCS of Central Florida and the Florida Gulf Coast, CCCS of Palm Beach County and the Treasure Coast, CCCS of East Tennessee, CCCS of Jackson (Mississippi) and CCCS of Upstate South Carolina.
The nonprofit agency is accredited by the Council on Accreditation and is a member of the Better Business Bureau and the National Foundation for Credit Counseling (NFCC). Governed by a community-based board of directors, CredAbility is funded by creditors, clients, individual donors and grants from foundations, businesses and government agencies. Service is provided 24/7 by phone at 800.251.2227 and online at www.CredAbility.org.