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Are You Ready for Retirement?

Your nest egg may be bigger than you think

by: Jean Chatzky, from: AARP, July 23, 2012

nest egg, retirement, money, chatzky, savings, robin's eggs

Don't suddenly boost your saving by 10 to 15 percent. Instead, nudge yourself by saving 2 or 3 percent more. — Photo by Christopher Griffin/TrunkArchive.com

En español | I blame myself.

Well, myself and the rest of the financial press. For years we've warned you to save more, citing studies such as the Employee Benefit Research Institute's (EBRI's) Retirement Readiness Rating, which states that roughly 45 percent of boomers risk not having enough for basic expenses and health care costs.

And we've managed to scare a lot of people. One study from Allianz Life Insurance found that 61 percent of respondents ages 44 through 75 feared an empty bank account more than death itself.

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Time for some reassurance. Vanguard Center for Retirement Research director Steve Utkus looked at the EBRI data and thinks you might not be in such big trouble.

The reason: Studies like EBRI's take a black-and-white approach - either you're ready or you're not. Utkus sees another shade. He says 20 to 30 percent of Americans are "partially ready." Add them to the 55 percent deemed prepared and our national retirement prognosis is less dire. The trick is to get from partially to really ready. How?

Retirees' Cash Flow Gap

According to the Employee Benefit Research Institute, retired households spend about 80 percent as much as working households. But they earn only about 57 percent as much.

Find your finish line. According to Allianz, 36 percent of study participants don't know how long their savings will last. Big mistake. Run your numbers with an online calculator. AARP offers one; others include the Fidelity myPlan Snapshot and Prudential's Retirement Nest Egg Calculator.

Save a little more. Don't suddenly boost your saving by 10 to 15 percent. Instead, nudge yourself by saving 2 or 3 percent more, starting now. "That's the amount people can sneak out of their paychecks without noticing," Utkus says. "Two years from now, do it again."

Work a little longer. Go to the Ballpark E$timate from the American Savings Education Council and change your retirement age from 65 to 68; you'll see how valuable a few extra years can be.

Additional reporting by Arielle O'Shea

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This Might Hurt

Planning for Those Medical Expenses
How much money will a 65-year-old couple need for unreimbursed health care expenses in retirement? For a decade Fidelity Investments has been projecting this out-of-pocket figure, assuming men live to 82 and women to 85. Except for a downward blip in 2011, it has jumped an average of 6 percent annually, from $160,000 in 2002 to $240,000 this year. That's more than many of us save for our entire retirement.

What can you do about it? New York City financial adviser Gary Schatsky suggests breaking down that big number: Think $12,000 per year per couple for 20 years. If that's too much for you to save, don't let the fact that you can't hit the recommended goal stop you from saving what you can. And in years when you can save a little more? Do that, too. — J.C.