Retirement Cash: Will You Have Enough?

It's never too early to start saving for your dream retirement. Take a look at the smart money moves you can make.

"Ten years ago retirement wasn't even on my radar screen," says 46-year-old Mary Westheimer, who runs a Scottsdale, Ariz., online company. She and her husband began taking retirement finances seriously about six years ago. "I make subconscious and conscious decisions all the time to put money away," she says, "even though we don't have a regimented savings plan yet." Maybe not, but Westheimer is clear about her future in one sense: "I'm thinking of my retirement as different from the one my parents considered. I see it as a refocus, not a rocking chair."

After years of working and waiting for life on the weekend, retirement gleams with potential. Since people are enjoying healthy lives well into their 80s and 90s, many of us can now expect two or three decades of finally doing exactly as we please.

If we can afford to, that is.

There's a gap between the dream of retirement and the reality Americans face. A recent study from Washington University in St. Louis estimates that 4 out of 10 people over age 60 will fall below the poverty line at some point in their later years. Countless more will watch their dream retirement fade as they discover that their savings barely cover their immediate needs.

But the prospect of fiscal free fall has yet to alter most Americans' behavior. Studies by Merrill Lynch and others reveal that baby boomers are saving a scant third of what they'll need. This behavior can be especially risky for women, since they earn less and outlive men by an average of six years. "Women are so used to taking care of everyone else, be it children or aging parents," says Judy Benbow, an assistant vice president at MetLife Financial Services in Iselin, N.J., "that they disregard their personal needs."

Male or female, boomers' average net worth is about $82,000 per household, according to the most recent figures; a big chunk of it is in their homes. That's not much of a nest egg; money tied up in a house can't pay for daily rounds of golf or flights to Antigua, let alone food or prescriptions.

"Most people between the ages of 20 and 55 don't even think about retirement," says Stewart Welch, a financial planner in Birmingham, Ala., and co-author of J. K. Lasser's New Rules for Estate and Tax Planning. "But the biggest factor in building wealth is getting money in the system and giving it time to work." In other words, start saving early to get into the habit and to give your money time to compound (when it earns interest on savings plus the interest your savings have accrued).

The best way to save is in a 401(k), 403(b) or 457 account. (Don't let market hiccups scare you off: Though many people's retirement savings may lose ground, over the long haul 401(k)s make money for most investors.) Here again Americans are missing the boat. Nearly a quarter of workers who can participate in this kind of retirement plan don't, according to the Employee Benefit Research Institute (EBRI).

Even when employees make the smart move and sign up for a retirement plan, they often don't hand over enough of their paycheck. Many employers offer a match or contribution to workers' 401(k) plans. But in a study of nearly 150,000 employees by Hewitt Associates, more than half failed to qualify for the maximum match because they contributed less than the rules allowed.

"For most Americans, the 401(k) will be their primary source of retirement income," says Wayne Gates, director of John Hancock's Investment and Pension Group. "If they don't get it right, they will have no second chance and no safety net."

One way to create a softer landing at retirement is to continue punching the clock, as many boomers plan to do. According to the Retirement Confidence Survey, co-sponsored by EBRI, 61 percent of people currently in the workforce intend to keep working at least part-time after reaching retirement age, though the poll findings also indicate that most of them don't mind.

"I'll work as long as I'm healthy," says semi-retiree Linda Kase, 57, who lives in Teaneck, N.J., and who once owned her own employment agency. She now does temporary work as a recruiter. "Plus, the money pays for extras," says Kase, "like the month-long trip my husband and I just took to Hong Kong and Bali."

Keeping a part-time job can offset practical expenses too: "I am concerned about long-term health care costs," says Kase. "You can't have too much money."

Will working through your golden years be an opportunity or a grim reality? To really know, you'll have to take stock of your expectations -- and your costs. "We have looked at what our expenses are now," says Mary Westheimer. "We've asked ourselves whether we'll still live in this house, still have these cars, how much we will want to travel, how many toys we'll really need in retirement."

From Reader's Digest

 

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• Am I Saving Enough? What Can I Change?
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• Retire When You Want To
• You want to get out of that cubicle, but you think you're too young? Follow these tips to your dream retirement.
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• Ten 401(k) Warning Signs
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• When Just One of You Is Retiring
• Advice for couples who stagger their retirements.
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• American Savings Education Council
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• Employee Benefit Research Institute
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“ Stuck inside? Walk on your treadmill or, if you don't have one, do arm circles or march in place during TV commercials. ”

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