Anne Paris, like many Americans, started planning for retirement too late. And if she hadn't been shocked into reality -- by her pension provisions, of all things -- she probably would have delayed the crucial financial planning even longer.
But one day, she got a preview of the payout she would receive after retiring from Childrens Hospital in Baltimore, where she worked as the president's administrative assistant.
"I almost flipped a gear," she recalls, more than 15 years later. "It wasn't enough to buy a pack of cigarettes."
That's an all-too-common tale, financial planners and retirement specialists say. Americans usually wait too long -- often until their 50s -- to plan for their Golden Years.
Maybe they're preoccupied with other financial issues, such as buying a new house or putting children through college. Maybe they think Social Security or a company pension will provide plenty of money. Or, maybe they're just plain lazy.
"When you're young, you think you're going to be young forever," says Patricia M. Fisher, who specializes in retirement issues for Financial Plans and Strategies Inc.
Whatever the reason, too many people are putting their future in jeopardy.
Researchers at Merrill Lynch say Americans not only are ill-prepared to pay for their retirement, but they also have a severely flawed view of what the retirement years will cost.
Merrill Lynch's 1991 survey of 400 American pre-retirees aged 45 to 64 showed that many were counting much too heavily on somebody else for money after they stop working. In fact, nearly 60 percent of those surveyed said that they expected to get most of their income from Social Security or employer pension payments.
They're in for a surprise. Treasury Department officials say retirees making more than $20,000 receive only a third of their income from those two sources. The rest -- as Ms. Paris discovered -- usually must come from personal savings.
Once Ms. Paris realized she couldn't depend on her company pension, she began saving in earnest. She set aside $300 of each paycheck, even though that meant missing some Orioles games and trips to the theater. "When the symphony would call, I would say 'I'd like nothing better to donate, but I just can't.' "
That disciplined saving program, and her investment in a tax-sheltered annuity, paid off. Today, she lives in a pleasant apartment in the Charlestown retirement community in Catonsville.
When should you start planning for retirement? Earlier than you think.
"I'd start thinking about it in your 30s, at least," says Laurel financial planner Earl Snyder.
Why? Because the sooner you start saving, the faster your money will grow. That sounds obvious. But the numbers add up faster than you think.
Merrill Lynch figures show that if 35-year-olds start throwing $1,542 a year into their retirement pot, they'll have $145,633 by the time they retire at age 65.
The recommended savings bill goes up the longer you wait. Delay until you're age 40, and you'll have to put aside $2,089 each year. Super-procrastinators who don't start saving until they're 55 will have to throw a whopping $6,387 each year into the bank to keep up.
Or look at it another way. Suppose, says Phoenix Mutual Life Insurance in its booklet "Self-Security," you invest $2,000 every year until age 65. Assume an interest rate of 8 percent, compounded. If you begin at age 50, you'll end up with $58,649. If you start at age 30, your nest egg will be $372,204. But, by beginning your savings plan at age 25, you will end up with a whopping return of $559,562.
Sure sounds like a lot of money, doesn't it? More than you'd ever need in retirement, right?
Wrong. If you hope to maintain your current lifestyle after you retire, you will need 60 percent to 85 percent of your current annual income.
Some expenses are likely to disappear in retirement. You probably won't be burdened with a mortgage. You may need one car instead of two. And you won't have to worry about job-related expenses, such as pinstripe suits and commuting.
But don't expect your expenses to decrease dramatically.
"The old story is, you do less and less. But we haven't done any less than before," says Baltimore County retiree Glennon DeRoy. He and his wife Jean still travel and play bridge -- no gambling, of course -- and go to theater.
"Our expenses haven't gone down," he says. So how much money is enough?
Consider this example from T. Rowe Price, the Baltimore-based mutual fund company: John Smith, 35, makes $40,000 a year, and estimates that he could maintain his lifestyle on about $23,000 after taxes if he were to retire today. But at age 65, he would need nearly $75,000 in income, assuming that inflation averages about 4 percent over the years.
If inflation continues at the four percent rate, Mr.Smith would need $87,000 in the fifth year of retirement and more than $106,000 by the tenth year.