Retirement planning is personal

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Do you feel ready for retirement? How’s your 401(k) and/or individual retirement account doing? Has it recovered completely from the 2008 meltdown — or are you still playing catch-up?

Yesterday, Alicia Munnell, director of Boston College’s Center for Retirement Research, examined a recently released government study of household finances and concluded that as of 2010, the retirement account recovery had stalled. She pointed out that since 2007, the number of employees participating in contributory retirement plans has declined. Meanwhile, the number of cash outs, loans and hardship withdrawals has risen.

According to her calculations, the typical household — husband and wife together — approaching retirement had only $120,000 in 401(k) and/or IRA holdings in 2010, about the same as in 2007. If they were to take that money and purchase an immediate annuity with it, they’d get only $575 in monthly income at today’s interest rates , she says.

Social Security provides an average of 70 percent of income for people 65 and older, according to Munnell’s calculations, which are based on the U.S. Census Bureau’s Current Population Survey. The Social Security Administration reports that as of January 2012, the average Social Security payment for a retired worker was $1,230 per month. If we multiply that by two — assuming among people retiring today, both halves of most couples qualify for Social Security on their own — the total household income from Social Security is $2,460 in this mythical family.

If you subtract the 12.2 percent that Social Security holds back to pay for Medicare parts B and D, this couple will be left with $2,165 plus $575 from the annuity for a total of $2,740 to pay the bills each month. Of course, that’s before any defined benefit pension payments, savings outside of retirement accounts and part-time work.

Can two people live on $2,740 a month or $32,880 a year? Or is this — as Munnell implies — a retirement planning disaster waiting to happen?

It depends on where this couple lives. Here in small-town Michigan, especially if this couple owns their own home free and clear — they’ll be OK. Their tax bills — property, federal and state — will be minimal — no tax on Social Security. As long as they don’t own the Taj Mahal or a brand new Cadillac, insurance should be within their budget. And the rest of the costs are controllable. My garden already has a bumper crop of squash and tomatoes.

In other parts of the country, where taxes and the cost of housing are much higher, surviving on this much income could be trickier.

Anyway, I get tired of reading studies like this one, which is focused on an average that is almost meaningless. The only way retirement planning works is if you analyze your own situation and go from there. Get out your calculator and figure it out. Don’t be discouraged by somebody else’s bad news.