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Making Financial Tradeoffs on the Road to Retirement

While investing for retirement is a priority for many households, especially those headed by baby boomers, it's important to realize how the lifestyle choices that many of us make can impact this long-term goal.

Family Issues
For instance, according to a study published in Investment News, the years between ages 30 and 34 are becoming an increasingly popular time for working women to start families.1 There may be financial benefits to this approach, because establishing a career during one's 20s enables a worker to build a financial cushion and pay off college loans before starting a family. But longer term, the children of these women will begin college when these women are in their early 50s, frequently a worker's peak earning years. While investing for retirement should not necessarily drive family planning, it's important to understand the financial trade-offs that may be required.

There also is a trend of baby boomers changing careers and focusing their professional energies on work that gives back to society.2 Despite the personal rewards, these careers may not be as lucrative as choices made earlier in life, which could impact the ability to invest for retirement. In addition, some baby boomers want to retire before they are eligible for full Social Security benefits, which typically results in a benefit that is permanently reduced. In addition, those who retire before age 65 are not eligible for Medicare. Retiring early can require a retiree to purchase health insurance on the open market, which can cost thousands of dollars in premiums annually.

An Early Start Makes Sense
While it may be tempting for younger workers to think they can wait until age 50 to begin investing for retirement, this may not be a workable strategy, especially for individuals who elect a lifestyle change that may require a financial trade-off. Those who begin investing for retirement when they are in their 20s or 30s, and continue doing so annually throughout their career, may be in the best position to cope with life's inevitable surprises as they approach their later years.

Parenthood, a new career and other opportunities are likely to bring the types of rewards that make life worthwhile. Continuing to invest for retirement as you experience these life changes may help ensure that your financial assets are adequate to last a lifetime.

1Source: Investment News, June 30, 2008.
2Source: Encore Career Survey, Civic Ventures, June 2008.
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