Longer life spans affect early retirement plans


"Take this job and shove it."

That's apparently what many Americans would like to tell their employers. Only 18 percent of workers consider their careers personally and financially rewarding, according to a Roper poll.

You can join the growing trend toward early retirement even if you're not basketball great Michael Jordan or a lottery winner. However, it requires years of planning, careful saving and consideration of all financial aspects, especially lifestyle requirements.

In some cases, the result may not be complete retirement, but rather abandoning your current job to do what you really want to do, perhaps on a part-time basis, with proper financial underpinnings in place.

While early retirement in one's 40s or 50s remains a dream of many, there are concerns. Longer life spans of modern Americans means an early retiree will have to make savings and retirement income stretch a long time through different economic periods. In addition, financial demands involving children or parents could preclude early retirement.

Figuring what early retirement would require is useful, especially since many companies have shown a tendency to shove out employees involuntarily on short notice. Your computations may also get you started on a serious retirement savings and investment program.

"Early retirees are likely to need 60 to 80 percent of their last high year of income to maintain the same lifestyle," counseled Don Underwood, vice president in charge of retirement plans at Merrill Lynch & Co. and co-author of the book "Grow Rich Slowly" (Viking, New York, 1993). "It's crucial to find out the current value of your employer pension plan, your retirement benefits and also your Social Security status."

You'll need early disciplined saving. For example, it's estimated a 30-year-old earning $40,000 annually should set aside just over $300 a month to retire at age 55 and maintain the same lifestyle. Another individual who doesn't start saving until age 40 would have to put more than $600 aside a month to retire at 55. Someone putting off saving until age 50 would need to stash a hefty $800 monthly sum.

"Five years would be too short a time frame to prepare for early retirement if you've done nothing yet," noted Craig Hoogstra, director of financial and special services for the American Association of Retired Persons in Washington. "See if you can set aside a certain percentage of income month in and month out, then examine how much you'd need to retire early and how soon retiring would be possible."

Most defined benefit pension plans require that you be age 55 and have 10 years of service before you're eligible to draw benefits. Anyone seeking to retire before that time must have considerably more savings put aside to bridge the gap before such benefits kick in. While working, take advantage of company 401(k) plans, as well as Keogh plans or individual retirement accounts.

"An early retiree's calculations of the future must take into account inflation, tax brackets and risk tolerance," advised Steve Weinstein, national director of personal financial planning for Arthur Andersen. "The rates of return expected, the ability to save and the setting of a realistic expense budget are interrelated."

Your needs won't be static in retirement. Greater leisure time often results in spending more on travel and entertainment.

"Remember you won't have the same car the next 25 years, and also analyze your housing and general debt situation," warned Marilyn Capelli, a certified financial planner and vice president in charge of private banking for Flint, Mich.-based Citizens Banking Corp.

Capelli recently put a client facing a forced early retirement on a "kamikaze" budget, meaning absolutely no cable TV, meals out or movies.

Evaluate your employer's health insurance coverage after retirement and its cost, realizing you could need independent insurance.

"Looking to the future, there's still the question of health insurance changes under the Clinton administration, for it's not clear what the subsidy will be," said Mike Hayes, consultant with Hewitt Associates, a benefits consulting firm in Lincolnshire, Ill. "In my computations, I advise assuming the worst and hoping for the best."

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