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“Today a hope of many years’ standing is in large part fulfilled. The civilization of the past hundred years, with its startling industrial changes, has tended more and more to make life insecure. Young people have come to wonder what would be their lot when they came to old age. The man with a job has wondered how long the job would last.”
Franklin Roosevelt’s Statement on Signing the Social Security Act
August 14, 1935

After seventy-seven years, civilization has fallen into similar tendencies of insecurities. As a younger person, I have not invested too much consideration towards a retirement plan, but the current contingencies concerning Social Security benefits has encouraged me to better understand the policies that continue to favor the alternative solutions for retirement compensation. Social Security will become obsolete and younger generations will have to rely on plans such as 401k to provide their retirement compensation. It is imperative for future generations to acclimate themselves with the formalities and policies of a 401k retirement plan and develop a course of preparation for financial stability after retirement. Ultimately educating oneself is essential for the protection of ones future.

The basic components of the 401k retirement plan are based on the employee investing a percentage of income into a 401k savings. The 401k earns continuous interest defined by the institution that the employee has invested with. The amount escalates through continuous cash deposits and, depending on the agreed terms, a percentage of interest that is paid regularly. In most cases, once a person retires, the 401k has established the necessary amount to provide a person with sufficient financial compensation. The 401k account can be accessed by a lump sum at any time, but this action is met with a higher percentage of taxation and potential fees or penalties agreed upon when it was established. Depending on the person’s understanding in selecting their retirement, lump sum compensation can prove either to be a solid investment that generates a sufficient compensation or could potentially become an investment risk and render insufficient for covering a person’s cost of living. The 401k places the responsibility of retirement planning upon the individual, and if a person happens to misinterpret or unintentionally makes a poor investment that was misleading anyways, then the burden of financial security falls upon the individual.

In 1935, Franklin D Roosevelt guided the American people through hardship and depression and strengthened the people and the quality of life, in 2012, the hardships that surround us today continues to escalate, but our Government has become a major contributor to some of the hardships, and avoid taking responsibility for the actions that we are by law obligated to. American lives are becoming a more “You are on your own” society similar to our retirement planning. So we prepare ourselves for whatever may come. Education and research are fundamental and crucial.

Retirement is the dream of every American worker. Unfortunately, the dream is fading for many baby boomers because of poor retirement planning. There are several reasons.

The average retirement age for an American worker today is 62 years old. Unfortunately, these folks have seen their 401(k) and other retirement funds undercut by the recession and they do not have enough money to retire. Traditional pension plans have shifted over the last 30 years to plans that require employee contributions. These pension plans were also hit hard by the recession and many are woefully underfunded. Surprisingly, 47 percent of US households are not covered by a defined benefit or contribution retirement plan.

Average retirement savings at age 50 is $43,797. One estimate of what is require for sustained retirement states that a household will need 70 percent of a retiree’s pre-retirement income – without debt – to live comfortably. Baby boomers are saving as little as 38.2 percent of what will be needed to retire. Up to 50 percent of them are unprepared for retirement.

The most astounding statistics may be that only four percent of retirees have accumulated sufficient wealth for retirement. At the same time, up to 63 percent of retirees depend completely on Social Security and family for retirement. Clearly, starting to prepare for retirement is a planned process that begins early.

Most experts strongly recommend beginning a systematic and disciplined retirement savings program when individuals enter the work force in their early 20s. The reasoning is simple – there is more time to accumulate retirement wealth. For instance, a person who starts saving for retirement at 25 and puts away $3,000 per year for 10 years in a tax deferred account at eight percent will save $472,000 – and that amount keeps growing. In the same scenario, a person who begins saving at 35 will accumulate $367,000. That is a significant difference of $105,000.

Individual Retirement Accounts (IRA) and 401(k) plans are the retirement vehicles of choice among retirement planning experts. They are tax deferred accounts in which taxes are paid after retirement at a lower rate. At a young age, savers should invest their accounts in higher yield growth stocks that will provide the most return. By age 50, the saver’s portfolio should reflect a more conservative and cautious approach to saving and be made up of bonds and stable investments.

Retirement financial planning must start early and continue until retirement. This is the foundation for the retirement dream.