You Can Still Retire, Really!

Could you read another report that shows how little Americans have saved for retirement in these troubled times? I know it's difficult, so I came up with a simple formula for figuring out how much you need.

Pencil in how much money it would take for you to live comfortably for 25 years. Include items that are not covered by insurance -- deductibles, travel, home maintenance, taxes. Then project how much Social Security and retirement income you will have by the age in which you cast that not-so-longing last glance at your office door.

The difference between your comfort zone amount and your retirement kitty is the worry gap. That's the amount you need to make up by working longer, saving aggressively or downsizing your lifestyle.

For millions, the worry gap is a pretty deep crevasse. It's hard to fill it up with money when your 401(k) is underfunded and the bills keep arriving. In a job-losing, no-raise economy, it looks like a bottomless pit.

A recent survey -- one that I always take note of -- showed that some two-thirds of those polled in the two lowest pre-retirement income levels will be running short only 10 years into retirement. These folks, as monitored by the annual Employee Benefit Research Institute's (www.ebri.org) "Retirement Readiness" study, are saving the least for retirement.

Yet even those in the highest-income groups are still going to be facing problems paying for basic expenses and uninsured medical bills. Remember that Medicare has co-pays for hospital and medical services and is in severe fiscal trouble.

The EBRI study also broke down who was most at risk. "Early" boomers (those aged 56-62) had a 47 percent chance of running out of retirement funds. Their younger peers (ages 46-55) and "Generation Xers" (ages 36-45) are about 44 percent at risk.

Where do you stand? If you are going to come up short, there are myriad ways of conquering the worry gap. Here are some options:

Downsize. Do you expect to live in the same space when you're older? Can you live in half the square footage? A smaller home or apartment lowers your living costs. A move from a single-family home to a condo, co-op or townhouse can mean lower property taxes, maintenance and financing costs. This makes most sense for empty nesters. The key theme is that the American Dream shouldn't be tied into the size of your shelter -- it should revolve around what you can afford and how much you save.

Rethink Retirement. For many, completely retreating from the workforce completely is a bad idea. It may lead to poorer health, early death and annoying one's spouse/partner full time. Being in the workforce longer means continued benefits and the ability to save. You may also get a free match in an employer savings plan. If you suffer from a disabling condition or chronic illness, this is not an option, so look at how you will cover medical expenses.

Automate Savings. If you're in a 401(k), sign up for automatic enrollment and increases. If you don't have to think about contributions, you'll save more. Even if you don't have an employer plan, you can set up auto-debits into Individual Retirement Accounts.

Fund Your Roth. Roth IRAs and 401(k)s are looking good right now. While your contributions are taxed, your withdrawals are not (subject to a few rules). Most retirement plan withdrawals are taxed at full marginal rates. I think income taxes are going up to cover Medicare's shortfalls, so Roths rule.

The best thing you can do is survey yourself, your family/spouse/partner and take a hard look at your comfort zone. You may have to throw out some preconceptions about retirement, but don't ignore the possibility that some adjustments may be needed.