America’s retirement picture looks anything but rosy.

Bankrate’s recent survey reveals that 70 percent of Americans worry about saving enough money for retirement. And after getting burned in the recent bear market, only half (49 percent) believe stocks and stock funds offer the best chance for good long-term returns.

Even American attitudes about homeownership are mixed. A whopping 92 percent say they believe a home is a good investment for the future, despite ongoing deterioration in the housing market. However, 48 percent of Americans worry they’ll lose or be unable to afford the home they live in.

As for pension promises, these seem to be less than solid as companies seek ways to trim costs or file for bankruptcy. Even Social Security doesn’t look like a sure thing anymore.

Will we all have to keep working until we drop?

John Spitzer, a former professor of economics at SUNY College at Brockport, N.Y., retired in January 2008, right before the worst of the real estate crisis and only a few months before the financial services meltdown. Just as he was settling into his retirement, he watched his nest egg take a big hit.

“I lost a significant percentage. I don’t have a crystal ball, but it could be years before we get back to where we were at the beginning of 2008,” Spitzer says.

If you’re planning to retire in the next few years, take these steps to see if your nest egg can adequately furnish your needs in best- and worst-case scenarios.

Retirement considerations
  1. What will you do?
  2. Don’t panic: Calculate.
  3. Other factors to consider.
  4. Should you delay retirement?

What will you do?

Lee Eisenberg, whose best-selling book “The Number” examines what it takes to live a satisfying retirement, concludes that when planning for retirement, you can run all the calculations in the world, but unless you know what you want to do with your life during your last 20 or 30 years, you’ll be “running numbers in the dark.”

Or as Eisenberg says, “The question you want to answer is: ‘Am I properly invested for what would make me happy?'”

In writing the book, Eisenberg discovered that many people don’t give any thought to how they’re going to spend their days after retirement, even though the amount of time they have left is probably a lot greater than it was for their parents or grandparents.

At age 65, here are your chances of attaining these landmark birthdays:

Probability of survival to:
Age Female Male
70 93.9% 92.2%
75 85.0% 81.3%
80 72.3% 65.9%
85 55.8% 45.5%
90 34.8% 23.7%
95 15.6% 7.7%
100 5.0% 1.4%
Based on Society of Actuaries Retirement Plan – 2000

Eisenberg says that many people he interviewed for his book told him that they wanted to spend their retirement years playing golf or traveling. While these hobbies could be a full-time passion, Eisenberg thinks they aren’t enough to sustain most people through 25 or 30 years of remaining life, and they’ll need something that will provide more purpose and motivation to get up every morning.

He suggests people identify that meaningful activity by asking themselves, “If I had 24 hours to live, what would I most regret?” They should then use their answer to develop a plan.

Once you have a plan, you can determine whether you have enough money to carry it out.

Don’t panic: Calculate

Plenty of scary numbers related to retirement are floating around, but Dr. Bruce Palmer, a retired Georgia State University professor of actuarial science, risk and insurance, says his calculations for Aon Consulting reveal that the lump-sum targets that average families should strive to attain are achievable. 

For several years Palmer has calculated how much money it takes for someone to replace their preretirement income during retirement. He wrote about his most recent findings in “2008 Georgia State University/Aon RETIRE Project Report.”

As an example, take an average couple. He’s 65 and she’s 62 when he retires from a job that paid $80,000 in annual income.

After retirement their situation changes. They don’t have to pay Social Security taxes or save for retirement any longer, so they can eliminate those costs, and commuting expenses disappear as well. Palmer adjusts their taxes to reflect their age — people older than 65 get to claim a higher standard deduction and at least some Social Security isn’t taxable — and concludes that this couple needs $61,600 before taxes or about 77 percent of their preretirement income to continue their current lifestyle in retirement.

About 39 percent, or $31,200 of their preretirement income, will come from Social Security. If the couple determines that the remaining $30,400 not provided by Social Security must come from savings, then to ensure a 95 percent probability of not outliving their money, this couple will need to have saved a nest egg of $715,000. If they are content with a 50 percent probability of not outliving their savings, then they’ll need $420,000.

Those savings levels appear daunting, but if this couple is willing and able to cobble together the remaining $30,400 from a combination of savings, pension and part-time employment, “then they should be able to reasonably maintain their same standard of living into their retirement years,” Palmer says.

Retirement savings needed for success
Preretirement income $80,000 $90,000 $150,000 $200,000 $250,000
Social Security (%) 39 36 23 17 14
Private and employer sources (%) 38 42 61 69 74
Total (%) 77 78 84 86 88
Private and employer sources (annual $)
$30,400
$37,800
$91,000
$138,000
$185,000
Savings needed for 50% probability of not outliving assets (27 years)
$420,000
$525,000
$1,260,500
$1,905,000
$2,555,000
Savings needed for 95% probability of not outliving assets (38 years)
$715,000
$890,000
$2,150,000
$3,250,000
$4,355,000
This assumes one wage earner who retires at age 65 with a nonworking spouse who retires at age 62. Social Security includes payments made to both spouses. It also assumes average annual investment returns of 7.8 percent with a standard deviation of 10.7 percent.
Source: Aon Consulting

Other factors to consider

It pays to control taxes. In 2009, when a married couple 65 or older files jointly, they are entitled to increase their standard deduction by $2,200 for a total of $13,600. In that situation, most people who have less than $100,000 in income will pay less federal income tax if they take the standard deduction than they will if they itemize deductions. Taking the standard deduction eliminates any advantage to carrying a mortgage. It also makes living where state and property taxes are low even more attractive because you can take the standard deduction no matter what.

Get rid of debt. Paying off the house gives a retired homeowner the option of taking out a reverse mortgage. Historically, housing has increased in value faster than inflation has risen. Inflation erodes income in later life, so the possibility of taking a reverse mortgage down the road can provide insurance against coming up short. Yes, you can take a reserve mortgage if you still owe on a mortgage. It’s one way to pay it off.

Staying healthy is the wild card. Palmer says calculations assume that you won’t have health care costs that are higher than average. Buying long-term care insurance can take a bite out of monthly income, but it could pay off in the end. No one can predict when a debilitating illness will hit.

Should you delay retirement?

It is a particularly bad idea to retire if you will find it necessary to immediately begin taking money from savings right after you suffer market losses. Moshe A. Milevsky, professor of finance at York University in Ontario, Canada, explains how it works.

If you take 9 percent out of your $100,000 portfolio every year (or $750 a month) beginning at age 65 and your portfolio earns 7 percent per year, your nest egg will be exhausted by the time you are just past your 86th birthday.

If you don’t earn a steady 7 percent return on your money, the situation can get worse. If, for instance, you start taking out money in a year when the market loses 13 percent in the first 12 months, then the market gains 7 percent the next year and in the third year jumps up 27 percent, trouble comes quicker. While it may seem like your savings would have fully recovered with such generous returns, the age at which you run out of money drops in this scenario to 81 — five years sooner than it would have if there had been a steady 7 percent return.

Effect of market returns on nest egg
Return sequence Age at which money runs out +/- months
+7%, +7%, +7% … 86.50
+7, -13%, +27% … 83.33 -38
+7%, +27%, -13% … 89.50 +36
-13%, +7%, +27% … 81.08 -65
+27%, +7%, -13% … 94.92 +101
Assumes withdrawals of $9,000 per year. Courtesy of Moshe A. Milevsky, Ph.D.

The wisdom proffered by most financial advisers is to take out no more than 4 percent of savings in the first year, then increase that amount annually by the inflation rate. If you have $100,000 in savings, you can take out $4,000 the first year ($333 a month) and $4,120 the second year.

Professor Spitzer, who studied various theories of calculating withdrawals of retirement income, recommends that retirees who face the reality of an uncertain economy should recalculate withdrawals from their retirement accounts at regular intervals. He suggests limiting withdrawals to 4 percent for the first five years, with no increase for inflation, and then recalculating. Even if the total amount has declined, the number of years that you’ll need money also will have decreased. “But if the market comes back with a vengeance,” Spitzer says, you may find yourself mathematically able to give yourself a significant raise.

In the meantime, continuing to work at least part time can make up the shortfall.

But don’t make employment your only retirement plan. In a retirement confidence study, the Society of Actuaries determined that 40 percent of people retire earlier than they planned because of their health or because they just can’t find employment.

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