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How cleaning your bathroom can cost you $47,000

June 27, 2011

By Margarette Burnette | Money Rates Columnist

If you would rather scrub your toilet than plan for retirement, you're not alone. A recent study from the ING Retirement Research Institute, "Shining a New Light on Retirement," found that nearly a third of pre-retirees consider cleaning their bathrooms or paying bills more pleasant than figuring out how to save for their golden years.

But this type of procrastination could really cost you, says Lynne Ford, CEO of ING Individual Retirement.

If you delay your retirement plan by just five years, you could lose tens of thousands of dollars in savings, she says. For example, consider a 40-year-old worker who makes $60,000 annually. That person invests 6 percent of his income each year in a tax-advantaged investment or savings account which earns 4 percent in annual interest until the worker retires at age 65.

If this worker procrastinated and waited until age 45 to start the same savings plan, he would have about $47,000 less upon retirement--approximately $119,000 instead of $166,000. "There is definitely a benefit to starting early," Ford says.

Overcoming retirement planning anxiety

No one sets out to lose out on almost $50,000, but people often don't start retirement planning because they feel overwhelmed and don't know the first step to take, Ford says. The way to overcome this anxiety, she advises, is to develop a simple savings road map that can be managed on a monthly basis as part of your regular budget.

"If you think about a 30-year career and know there are 12 months in a year, that's 360 months of executing against your retirement plan in some systematic way," says Ford.

4 steps to an on-track retirement

Had enough of the procrastination anxiety? You owe it to yourself to do some realistic retirement planning now. It's time to put away the toilet scrubber and pull out the pen and paper (or fire up the computer). Here are four simple steps to get your retirement on track:

  1. Identify your savings target

  2. Use a retirement calculator to help you identify a quantifiable retirement goal, says Jack VanDerhei, research director at the Employee Benefit Research Institute (EBRI).

    Online calculators, such as the ones on MoneyRates.com or the ING Retirement Planning website, have fields where you can enter your age, income, how much money you've already saved, how much you plan to save each year and your anticipated rate of return, he says.

    "When many people use these calculators, they often realize that they're not on track for savings," says VanDerhei. In fact, EBRI has just released the results of a survey that shows worker confidence about retirement preparedness is at an all-time low.

    There is a silver lining, however. For many people, their fears over retirement are what can motivate them to jump-start saving. "You have to be aware there is a problem before you can start treating it," he says.

  3. Enroll in tax-advantaged investment and savings programs
  4. The first and best place to start saving for retirement is at your place of employment, says Ford. If your job offers a 401(k) or 403(b) account, you have access to a plan that's relatively easy to use, compounds your returns and may even offer "free money" if your employer has a matching program, she says.

    "Money gets deducted directly out of your payroll--and it's happening for you on autopilot, so it's not a hassle every month," Ford says. If you don't have access to an employer plan, look into an IRA or SEP-IRA as a viable alternative, she says.

  5. Consolidate retirement accounts

  6. According to the ING Retirement Research Institute study, another factor that makes retirement planning difficult is the fact that workers are more likely to change employers multiple times over the course of a career, so they're more likely to have different retirement accounts at different institutions.

    Keeping up with separate investment and savings accounts makes retirement planning difficult, Ford says. The solution is to try to consolidate them as much as possible--for instance, into a single IRA. You could also move funds into your current company's plan, if it allows transfers from retirement funds held under previous employers, she says.

  7. Redefine retirement

  8. It's never too late to start saving for retirement, but if you've been procrastinating a long time, it may be unlikely that you'll have enough money from pensions, savings plans and Social Security to allow you to retire at a certain age, says VanDerhei. "A substantial percentage of households won't be ready for retirement by age 65."

    If you're in this situation, consider rethinking what retirement means. Perhaps you might choose to work full-time a few extra years or choose to accept a part-time job in retirement. Redefining retirement could also mean focusing on reducing expenses rather than increasing your income and savings. You might consider living a more frugal lifestyle. Working with a qualified financial planner can help you identify different strategies for creating a lifestyle that works with your finances.

    If you're able to work longer and downsize your expenses in order to fund a comfortable retirement, that's not a bad thing, says VanDerhei.

Thinking seriously about your retirement may not be the most fun item at the top of your list, but building up a robust retirement savings account will give you peace of mind that will last far longer than a clean bathroom.

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