Will You Be In the Bread Lines?

Is the need to save for retirement in America being ignored by the average American today like harbingers of 1929 Stock Market crash were ignored in the last century? Sure, we hear a lot of "blah, blah, blah" about the need to save for retirement. Yeah, people say, there's a crisis looming. But it seems that no one really wants to do anything about it. Who can worry about that stuff now, the conventional wisdom goes. It will all work out somehow.

Will the end result of this apathy be that many retirees will have to depend on handouts and breadlines to survive in their retirement? Could something like that really happen again in America? Let's hope not.

But a recent study by the Employee Benefits Research Institute found that while 72% of workers reported saving for retirement, 36% of them had saved less than $10,000, and only 39% had saved $50,000 or more. For those people who have 401(k) plans, Bankrate.com reported that the average 50-year-old had only $137,766 in a 401(k) and that the average 60-year-old had only $140,957.

Sounds bad, doesn't it? While I am definitely not one of those who thinks you'll need millions to retire, I do think you'll need something for retirement other than Social Security. I think there's still time for most workers to avoid the handout and breadline scenario and get their retirement savings plan back on track. But today (not tomorrow) is the best day to start! If you behind on your retirement savings, do something about it now. Here are four "must do's" for anyone who hopes to retire:

1. Calculate Your Net Worth: Simply add up the value of all of your income producing assets (i.e., your savings and investments, and the value of any other saleable property you own). Forget about your home for now. I'll be writing about the value of your home as an "investment" in a future blog entry. Next subtract from the total all of your indebtedness (i.e., how much you owe on your mortgage, credit cards, personal loans, lines of credit, etc.). This net worth figure is basically your retirement nest egg. This number tells you where you stand today.

2. Project How Much Your Nest Egg Will Grow: Next project, using a reasonable figure -- say 7%- 8% per annum -- how much your nest egg will grow between now and your anticipated retirement date (for the purposes of this exercise we'll assume, and hope, that you don't take on any more debt). For this calculation, you can use a simple compounding calculator like the CD calculator available at Bankrate.com.

3. Project How Much More You'll Earn Before Retirement: Make an estimate of how much you expect to earn between today and your anticipated retirement date. Use what you earn now as a guide to determine what you'll make in each future year you plan to work, increasing your current pay in each future year by some reasonable percentage -- say 3% per annum -- to account for any future raises. From this total you'll have to fund your expenses before retirement and save to increase your retirement nest egg.

4. Make a Retirement Budget: Estimate what you might spend in retirement. Use your current expenditures as a guide, eliminating expenses you have today that you won't have in retirement (e.g., commuting expenses, mortgage payments, expenses for children's upkeep, dry cleaning, work clothes, lunches out, $4.00 lattes, etc.) and adding back and new expenses you'll have after you retire (health insurance premiums, greens fees, travel expense, etc.).

Don't like what you see? My next blog entry (coming soon!) will provide some tips on what you can do to get your retirement back on track.