finance

Is your retirement plan on track?

Would you prefer to be alarmed by how unprepared you might be for retirement? Or would you rather be lulled into a false sense of security?

Me, I'd rather be lulled because then I could meander through life without a care in the world. But no matter what you'd rather feel, it's wise to become aware of your retirement needs and take appropriate action to reach your goals. Turn that feeling of alarm -- or complacency -- into action.

Concerns of baby boomers
Among us boomers, confidence about retirement security is low, according to a recent survey, with 80 percent of boomer respondents saying they are fairly confident, somewhat confident or not at all confident about retirement. Only about 15 percent of boomers are very confident about having adequate savings for retirement.

A big part of the problem is that we're not omniscient. We don't know how long our savings will need to last. Who can guess how long we will live? We have no idea how much our retirement nest egg will earn before or after retirement. We don't know how much inflation will eat into our return. Even if we correctly guess all these things, something unexpected -- such as medical costs -- could easily throw the numbers out of whack.

So it's not surprising to discover that we have a hard time coming up with a dollar figure for our nest egg -- the money we should strive to accumulate by the time we retire. Nearly 10 percent of us believe we should save more than $2 million; about 12 percent say somewhere between $1 million and $2 million; about 20 percent, between $500,000 and $1 million; and roughly a third of us say somewhere between $50,000 and $500,000. The rest of us -- about a quarter of survey respondents -- just shake our heads and admit we have no clue.

The good news and the dreadful news
In June, Fidelity Investments came out with its report on " America's Retirement Readiness." According to a survey of 1,900 households, Americans are on track to replace 59 percent of their pre-retirement income during retirement. That seems impressive -- until you look at the assumptions behind that number.

The typical American household, headed by a 43-year-old, has $18,750 in retirement savings. (This represents the median household -- meaning that half of American households have more in savings, half have less.) That household is on track to replace somewhere between 10 percent and 20 percent of pre-retirement income -- that's the income you earn just before you say buh-bye to your job for good. Social Security and pension benefits are expected to cover the rest.

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I'm not sure how anyone can count on pensions and Social Security to meet the bulk of their retirement needs. Pensions are going the way of electric typewriters and Social Security is currently undergoing a legislative metamorphosis, making it difficult for anyone to calculate benefits with any degree of certainty.

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