Retirement Cash: Will You Have Enough?

It's never too early to start saving for your dream retirement. Take a look at the smart money moves you can make.

"Ten years ago retirement wasn't even on my radar screen," says 46-year-old Mary Westheimer, who runs a Scottsdale, Ariz., online company. She and her husband began taking retirement finances seriously about six years ago. "I make subconscious and conscious decisions all the time to put money away," she says, "even though we don't have a regimented savings plan yet." Maybe not, but Westheimer is clear about her future in one sense: "I'm thinking of my retirement as different from the one my parents considered. I see it as a refocus, not a rocking chair."

After years of working and waiting for life on the weekend, retirement gleams with potential. Since people are enjoying healthy lives well into their 80s and 90s, many of us can now expect two or three decades of finally doing exactly as we please.

If we can afford to, that is.

There's a gap between the dream of retirement and the reality Americans face. A recent study from Washington University in St. Louis estimates that 4 out of 10 people over age 60 will fall below the poverty line at some point in their later years. Countless more will watch their dream retirement fade as they discover that their savings barely cover their immediate needs.

But the prospect of fiscal free fall has yet to alter most Americans' behavior. Studies by Merrill Lynch and others reveal that baby boomers are saving a scant third of what they'll need. This behavior can be especially risky for women, since they earn less and outlive men by an average of six years. "Women are so used to taking care of everyone else, be it children or aging parents," says Judy Benbow, an assistant vice president at MetLife Financial Services in Iselin, N.J., "that they disregard their personal needs."

Male or female, boomers' average net worth is about $82,000 per household, according to the most recent figures; a big chunk of it is in their homes. That's not much of a nest egg; money tied up in a house can't pay for daily rounds of golf or flights to Antigua, let alone food or prescriptions.

"Most people between the ages of 20 and 55 don't even think about retirement," says Stewart Welch, a financial planner in Birmingham, Ala., and co-author of J. K. Lasser's New Rules for Estate and Tax Planning. "But the biggest factor in building wealth is getting money in the system and giving it time to work." In other words, start saving early to get into the habit and to give your money time to compound (when it earns interest on savings plus the interest your savings have accrued).

The best way to save is in a 401(k), 403(b) or 457 account. (Don't let market hiccups scare you off: Though many people's retirement savings may lose ground, over the long haul 401(k)s make money for most investors.) Here again Americans are missing the boat. Nearly a quarter of workers who can participate in this kind of retirement plan don't, according to the Employee Benefit Research Institute (EBRI).

•	Retirement Cash: Will You Have Enough? Readers Digest (NY), Thursday, Sept. 6, 2007 Byline: Joanna L. Krotz, from Reader's Digest