How to hatch a retirement plan

Gayle B. Ronan

As company-managed pensions go the way of the typewriter, individuals planning for their golden years must take on the responsibility of managing their own retirement funds, whether in an employer-sponsored 401(k) plan or a non-corporate individual retirement account.

Yet as wave after wave of surveys indicate, most are faltering under the weight of this responsibility. From just deciding to participate and how much to save, to investing those savings, many are overwhelmed.

Saving for retirement and managing those savings should be neither mysterious nor overly complex. With fast answers available online and many plans designed to provide autopilot options, all it requires is a basic understanding of some key concepts and, of course, action. To that end, here is a guide to mastering the concepts needed to manage these plans and improve the odds that when retirement does roll around, you will have sufficient savings to make it a comfortable one.

Social Security isn't the answer
With Social Security under financial pressure from the graying baby boomer generation, no one should be counting on it for funding all their retirement income needs. 

“The system was never intended to supply 100 percent of retirement income, only (to) serve as a safety net,” says Andrew Eschtruth, spokesperson for the Center for Retirement Research at Boston College.  Given its funding problems, Social Security is even less likely to be a main source in future decades.

Because of changes made to the system in the 1980s, the age at which you can receive full Social Security retirement benefits is gradually rising. Anyone born before 1938 was able to draw full benefits beginning at age 65. But for those born in 1960 or later, the full retirement age is 67. If an earlier retirement is sought or an individual is forced into early retirement due to failing health, having a nest egg to fall back is crucial.

Save the right amount
Though the majority of those with access to a 401(k) plan now participate, about one in five still does not, which can be a very costly mistake.

“At the very minimum, even younger or lower-income workers should be participating enough to trigger the employee match offered by many firms,” says Eschtruth. Not contributing enough to get the match is like volunteering to work for less than a co-worker who is contributing to a 401(k) fund.

Special report Will you ever be able to retire? Road to retirement: 3 personal profiles Myths and realities about retirement Trouble spots in state pension system   Speak out: Are you ready for retirement? Vote: Compare your nest egg with others Test your retirement IQ | Full coverage

But simply saving up to the "match" is not enough. More than half of workers 55 and older have saved less than $50,000 toward retirement, according to an April survey by the Employee Benefits Research Institute. That is not enough to ward off financial disappointment in retirement or, for that matter, support a retirement likely to last 20 years or more.

“It’s our biggest concern,” says John Gannon, vice president investor education at the National Association of Securities, the regulatory authority overseeing the securities industry. “Given the low level of assets in retirement plans, it is clear most savers have not taken the time to calculate what they need to be saving.”

Gannon, like many others, believes it is math, not an inability to save more, that threatens to undermine future retirees. Yet online calculators make it easy to at least get a ballpark estimate of what you need to contribute.

“The truth is you cannot save too much,” says Eschtruth. But given the rather small amounts many individuals have accumulated so far, too many are saving too little.

MORE FROM CRACKED NEST EGG

Cracked Nest Egg Section Front

Amid panic, uncertainty, they retired anyway Out of work, out of options, into retirement Education a factor in outlook on retirement The new ‘retirement’ plan: Keep working With effort you can still retire well Blacks, Hispanics save less for retirement Jackson death illustrates will vs. trust issue Real-life dead pool the next subprime mess? Employers cutting back on 401(k) plans Couples don’t talk about their financial future Cracked Nest Egg Section Front   Add Cracked Nest Egg headlines to your news reader: